Cyprus launches probe into causes of financial ruin

NICOSIA (AFP) - Cyprus authorities on Tuesday launched a judicial probe into how the island was pushed to the verge of bankruptcy before having to agree a crippling eurozone bailout.

Cypriot President Nicos Anastasiades called on the three-judge commission - made up of members George Pikkis, Panayiotis Kallis and Yiannakis Constantinides - to investigate himself and his family members as a "matter of priority" and with "extra vigour".

This is seen as a move to counter unsubstantiated allegations that his family members used privileged information to get money out of the country before deposits were locked down.

Accusations have also been made against other leading politicians and business figures that they took advantage of their position to protect their assets from a hit on bank deposits imposed by European Union-led creditors last month.

Mr Anastasiades said nobody was immune from the inquiry, not even his extended family or the law firm in which he was a partner until recently.

"The current plight of the economy and our people is without a doubt the result of a synergy of factors both external and internal," Mr Anastasiades said at the swearing-in ceremony.

"A series of acts or omissions from those authorised to manage the economy or the banking system led the country to the brink of bankruptcy, the dissolution of one its largest banks and the loss of billions from an impairment of deposits," he added.

The massive losses suffered by savers in the island's two largest banks in the first eurozone rescue package to punish larger depositors has sparked huge resentment against anybody seen as having taken unfair advantage to shirk their share of the burden.

Big depositors in largest lender Bank of Cyprus face losses of up to 60 per cent, while those in second lender Laiki will have to wait years to see any of their money as the bank is wound up with the loss of thousands of jobs.

The government is looking to free up the remaining 40 per cent of BoC deposits of more than 100,000 euros (S$159,000) that are not frozen as part of the bailout agreed with the "troika" of the EU, European Central Bank and International Monetary Fund.

Allegations have swirled of big movements of cash out of both banks in the run-up to the bailout agreement as those in the know scrambled to protect their money.

The panel, which has three months to report its findings, will also probe a list published by Greek media of Cypriot politicians who allegedly had loans forgiven during the meltdown.

Cypriot banks have been operating under stringent capital controls since they reopened on Thursday, after a near two-week lockdown prompted by fears of a run on deposits.

Central Bank of Cyprus governor Panicos Demetriades said in an interview with the Financial Times published on Tuesday that the controls would be eased in stages.

"I can't really tell you if it will be seven or 14 days before capital controls end," Mr Demetriades said. "We have to lift them gradually."

He played down fears there would be a run on accounts once the controls were eventually relaxed.

"Once people realise how well capitalised the banks are there is little reason why there will be deposit flight," he said.

The draconian controls limit daily withdrawals to 300 euros and ban the taking of more than 1,000 euros in cash out of the country.

At the island's main international airport in Larnaca, signs in Greek, English and Russia warn departing travellers of the restrictions.