Cyprus banks open calmly amid first euro zone cash curbs

NICOSIA (AFP) - Cypriots stayed calm as banks reopened on Thursday after a nearly two-week lockdown, with the first capital controls of their kind in the euro zone saving the island from a catastrophic bank run.

President Nicos Anastasiades tweeted his thanks to the citizens of the bailed-out eastern Mediterranean nation for their "maturity" after they patiently queues outside banks that had been shuttered since March 16.

Dozens of people were waiting when bank doors opened at 1000 GMT (6pm Singapore time), but the lines had vanished when they closed six hours later, and security guards at most branches had little to do.

World stocks were largely up and the euro recovered versus the dollar.

The 10 billion euro (S$16 billion) EU-IMF rescue agreed with Cyprus on Monday was the first to impose a levy on bank depositors, and Cyprus is the first bailed-out euro zone nation to impose curbs on the movement of money.

Foreign Minister Ioannis Kasoulides said the restrictions could be lifted within a month "if everything goes as well as it did today".

Banks handed customers lists of the curbs, including a daily withdrawal limit of 300 euros, a ban on cashing cheques and a 1,000-euro ceiling on money being taken abroad by travellers.

Some people were even making deposits.

"There is confidence; everything was fine," unemployed electrician Philippos Philippou told AFP as he emerged from a branch of Laiki bank, which will be wound up under the bailout.

Mr Philippou had gone into the bank saying "it will be a very bad day; there will be swearing and a lot of anger".

Officials had said the capital controls were needed to prevent further damage to the fragile economy, which relies on a banking sector bloated with Russian money.

But after the banks reopened, Mr Anastasiades, who was elected only one month ago, gave "sincere thanks and deep appreciation" to Cypriots for not panicking at a "critical time".

Mr Anastasiades had decided to cut his own salary by 25 per cent, while cabinet members will take a 20 per cent reduction, a presidential aide said.

The cabinet has also appointed three ex-supreme court judges to probe whether "criminal, civil and political responsibilities" were involved in the meltdown, presidential undersecretary Constantinos Petrides said.

Mr Kasoulides, asked whether the probe could lead to arrests, prosecutions and convictions, told journalists: "It is quite possible that this will be the case."

But while the deal agreed in Brussels on Monday kept Cyprus from crashing out of the euro, the promise of years of future hardship has sparked protests at home.

Mr Kasoulides, referring to a forecast in December that gross domestic product (GDP) would contract by 3.2 per cent in 2013, said "it will definitely be much higher than this."

Yet he spoke of the "conviction that our banking system, despite the predicament that it has suffered... will stand on its feet, will face the problems.

"This is not the first time that our economy is suffering such an abrupt and violent shock."

It was "totally destroyed" by the 1974 Turkish invasion, "but the resilience of the Cypriot people managed to rebuild the economy very quickly."

On Thursday night, more than 100 members of the rightwing nationalist Elam party demonstrated in central Nicosia against the bailout measures, an AFP journalist said.

They chanted slogans including "Troika, out!" and "This island is Greek!"

Cyprus must raise 5.8 billion euros to qualify for the full 10-billion-euro loan from the "troika" of the European Union, ECB and International Monetary Fund (IMF).

Depositors with more than 100,000 euros in the top two banks - Bank of Cyprus and Laiki or "Popular Bank" - face losing much of their money.

Laiki will effectively be wound up and absorbed by the bigger bank.

German Finance Minister Wolfgang Schaeuble said on Thursday he understood Cypriot anger but added: "That will pass. It is of course completely unfounded."

As well as raising fears that other countries could face similarly harsh bailouts, the capital controls have raised concerns that there are now "two euros", as euros trapped in Cyprus are effectively worth less.

"This is not accurate," Mr Kasoulides said. "The euro is the euro." The EU said on Thursday there was "a matter of overriding public interest" in imposing the controls.

And the IMF said the plan to penalise depositors and bondholders to rescue Cyprus's banks was "unique" and not likely to be applicable elsewhere.

"It would be difficult to extend the case to the rest of Europe or to the world," spokesman Gerry Rice told reporters.

The retrenching forced by the plan "will be a difficult process for the Cypriot people over some period of time," he added.

"We're mindful of that but it would ultimately result in an economic model that is more sustainable and more growth-promoting."

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