News / Europe

Banks in Cyprus Remain Closed After Bailout

Cyprus Banks Remain Closedi
X
March 26, 2013 9:06 PM
People with more than $130,000 deposited in Cypriot banks could see about 40 percent of their deposits turned into bank shares, the country’s finance minister has warned. The news comes after Cyprus struck a deal with the European Union and the International Monetary Fund in which the island nation will get $13 billion in aid. But to earn it, Cyprus has to overhaul its banking sector. As Selah Hennessy reports from London, analysts say the result could be crippling.
Selah Hennessy
Depositors with more than $130,000 in Cypriot banks could see about 40 percent of their deposits turned into bank shares, the country's finance minister has warned. The news comes after Cyprus struck a deal with the European Union and the International Monetary Fund in which the small Island nation will get $13 billion in aid. To earn that money, though, Cyprus has to overhaul its banking sector and analysts say the result could be crippling.

Banks in Cyprus closed their doors on March 15, and they have not yet re-opened. The trickling cash flow already has taken its toll on the economy.

Small businesses say they are doing very little trade, and some say they already have had to lay off employees.

The worst likely is still to come, though, because the deal struck with international lenders aims to shrink the Cypriot banking sector, which is about eight times the size of the economy.

The country's biggest lender, the Bank of Cyprus, will be radically restructured and Laiki Bank, the second largest, is set to close. The bank employs 8,000 people - a massive blow for a small country with a population of less than 1 million.

Cyprus Central Bank Governor Panicos Demetriades (L) and Cypriot Finance Minister Michael Sarris listens to reporters' questions during a news conference in the building of the Central Bank of Cyprus, in Nicosia, March 26, 2013.Cyprus Central Bank Governor Panicos Demetriades (L) and Cypriot Finance Minister Michael Sarris listens to reporters' questions during a news conference in the building of the Central Bank of Cyprus, in Nicosia, March 26, 2013.
x
Cyprus Central Bank Governor Panicos Demetriades (L) and Cypriot Finance Minister Michael Sarris listens to reporters' questions during a news conference in the building of the Central Bank of Cyprus, in Nicosia, March 26, 2013.
Cyprus Central Bank Governor Panicos Demetriades (L) and Cypriot Finance Minister Michael Sarris listens to reporters' questions during a news conference in the building of the Central Bank of Cyprus, in Nicosia, March 26, 2013.
James Ker-Lindsay, Cyprus expert at the London School of Economics, said the whole economy will be affected.

"This deal has the potential to be completely devastating for Cyprus. The banks are a major part of the Cyprus economy," said Ker-Lindsay. "There is going to be a lot of businesses which will have lost money in all of this. This will trickle down through the economy. It will be absolutely enormous, the effects of this."

This EU/IMF deal differs from other euro zone bailouts because, instead of taxpayers footing the bill, depositors with large balances are bearing the costs. Cyprus academic Vassilis Monastiriotis said it is a major shift in euro zone policy.

"We had the most similar case of Ireland. We had the decision to push the bill to the taxpayer so the government, the Irish government took the responsibility of recapitalizing the banks, the deposits were guaranteed, and then this spilled over to the real economy," said Monastiriotis. "The case of Cyprus is exactly the opposite. It is the bond holders, the shareholders, and the depositors that take up the bill, and then we try to minimize the implications to the government."

On Monday the head of the Eurogroup, Jeroen Dijsselbloem, suggested the rescue program for Cyprus could be a new template for resolving the banking crisis in Europe. He said, "If the bank can't do it, then we'll talk to the shareholders and the bondholders, we'll ask them to contribute to recapitalizing the bank, and if necessary, the uninsured deposit holders."

Related video report by Mil Arcega
Cyprus Crisis Agreement Could Lead to Credit Crunch, High Unemploymenti
X
March 26, 2013 11:47 PM
Financial uncertainty for the island nation of Cyprus is far from over. Despite narrowly averting bankruptcy and securing a 13-billion-dollar bailout, economic pain may be just beginning. Economists say the country will pay a price in higher unemployment, bankruptcies and a credit crunch as it struggles to right its troubled banks. Mil Arcega reports.
Following his comments, financial markets dropped. Monastiriosis said it would be a dangerous precedent to set.

"There is a big risk of destabilizing the banking system of the euro zone with this kind of solution because the savings above 100,000 euros are not guaranteed anywhere in the euro zone. This may lead to very significant outflows of capital from the euro zone - definitely from the south of the euro zone to the north. But also potentially outside of the euro zone, and this will create more problems then it solves," said Monastiriosis.

For now, though, it is the Cypriots who have to cope with the immediate impact of their banking situation.

You May Like

Obama: I Will Do 'Everything I Can' to Close Guantanamo

US president says prison continues 'to inspire jihadists and extremists around the world' More

Sierra Leone Educates on Safe Ebola Burials

Also, country is improving at rapid response to isolated outbreaks, but health workers need to be even faster, officials say More

Christmas Gains Popularity in Vietnam

Increasingly wealthy Vietnamese embrace holiday due to its non-religious glamor, commercial appeal More

This forum has been closed.
Comment Sorting
Comments
     
by: NVO from: Cyprus
March 26, 2013 2:31 PM
Yesterday, reported on something very disturbing (at least to Cyprus’ citizens): despite the closed banks (which will mostly reopen tomorrow, while the two biggest soon to be liquidatedbanks Laiki and BoC will be shuttered until Thursday) and the capital controls, the local financial system has been leaking cash. Lots and lots of cash.

Alas, we did not have much granularity or details on who or where these illegal transfers were conducted with. Today, courtesy of a follow up by Reuters, we do.

The result, at least for Europe, is quite scary because let’s recall that the primary political purpose of destroying the Cyprus financial system was simply to punish and humiliate Russian billionaire oligarchs who held tens of billions in “unsecured” deposits with the island nation’s two biggest banks.

As it turns out, these same oligrachs may have used the one week hiatus period of total chaos in the banking system to transfer the bulk of the cash they had deposited with one of the two main Cypriot banks, in the process making the whole punitive point of collapsing the Cyprus financial system entirely moot.


by: IDUEHE from: Enugu
March 26, 2013 10:53 AM
Why such threat to the banking system, it is keeping down the growth of business as customers who are banking with them will experience stillness in their businesses. University of Nigeria http://www.unn.edu.ng defines it as inhumanity in business

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Ugandan Doctors Aid Victims of Sudan's Civil Wari
X
Adam Bailes
December 22, 2014 3:45 PM
In Sudan's state of South Kordofan, the number of amputees as result of civil war is in the thousands, but few have access to sufficient medical help. Adam Bailes recently visited the area and says a small team of Ugandan doctors has been providing remote help, producing new prosthetic limbs for those in need.
Video

Video Ugandan Doctors Aid Victims of Sudan's Civil War

In Sudan's state of South Kordofan, the number of amputees as result of civil war is in the thousands, but few have access to sufficient medical help. Adam Bailes recently visited the area and says a small team of Ugandan doctors has been providing remote help, producing new prosthetic limbs for those in need.
Video

Video Jane Monheit Christmas Special

Chanteuse Jane Monheit sings the holiday classic “Have Yourself a Merry Little Christmas,” and explains why it’s her favorite song of the season.
Video

Video Calm Amid Fear in Daily Life in S. Sudan’s Town of Bentiu

Six months ago, Bentiu was a ghost town. The capital of northern Unity State, near South Sudan’s important oil fields, had changed hands several times in fighting between government forces and rebels. Calm returned in November and since then, residents of Bentiu have been trying to regain some sense of normalcy. Bentiu’s market has reopened there are plans to start school again. But fears of new attacks hang heavy, as Benno Muchler reports from Bentiu.
Video

Video US Business Groups Press for Greater Access to Cuba

President Barack Obama's decision to do all he can to ease restrictions on U.S. trade, travel and financial activities with Cuba has drawn criticism from some conservatives and Republicans. People who bring tourists to the island and farmers who want to sell more food to Cuba, however, think they can do a lot more business with Cuba. VOA's Jim Randle reports.
Video

Video Three Cities Bid for Future Obama Presidential Library

President Barack Obama still has two years left in his term in office, but the effort to establish his post-presidential library is already underway. The bid for the Obama Presidential Library is down to four locations in three states -- New York, Hawaii, and Illinois. As VOA’s Kane Farabaugh reports, each of them played an important part in the president’s life before he reached the White House.
Video

Video Fears of More Political Gridlock in 2015

2014 proved to be a difficult year politically for President Barack Obama and a very good year for the U.S. Republican Party. Republican gains in the November midterm elections gave them control of the Senate and House of Representatives for the next two years -- setting the stage for more confrontation and gridlock in the final two years of the Obama presidency. VOA National Correspondent Jim Malone has a preview from Washington.
Video

Video Sudan School Becomes Target of Aerial Attacks

The school dropout rate is at an all-time high in Sudan's South Kordofan state because many schools have been destroyed during the three-year civil war between the government and SPLA-N rebel forces. Adam Bailes visited Sudan's Nuba Mountains' region and reports many children are simply too scared to go to school
Video

Video VOA Reporter Tours Devastated Peshawar School

Islamist militants wearing military uniforms and strapped with explosives attacked a military run school Tuesday in the northwestern Pakistani city of Peshawar. At least 141 people were killed in the horrific attack, most of them young students. VOA reporter Ayaz Gul visited the devastated school and attended the funeral of the principal who courageously tried to save her students from the deadly attack.

All About America

AppleAndroid