Last Ditch Cyprus Bank Deal Brings Little Relief; Much Uncertainty

By Karolina Tagaris and Michele Kambas | March 25, 2013

At a Cypriot pawnbroker, one of the few growth industries in Europe’s debt-ridden south, someone had vented the anger of an island: “Thieves” was scrawled across the window, in bright red paint.

The European Union might claim to have come to the rescue of Cyprus with a last-ditch deal to bail it out, brokered in frantic overnight talks in Brussels, but gratitude was in short supply in Nicosia on Monday.

The events of the past 10 days, in which Cypriot leaders and their partners in Europe’s 17-nation euro zone contemplated raiding the accounts of ordinary Cypriots to pay for the misdeeds of the island’s outsize banks, will have lasting consequences for the economy, for depositor confidence beyond its borders and for the credibility of the currency union.

“They’re going to stamp on our heads,” said Yannakis Ioannou, a 55-year-old optician playing backgammon.

“The only way out is to look at how we can go back to the Cypriot pound, no matter how agonizing that might be, so that we are no longer dependent on Germany’s Europe,” he said.

In the end, the Brussels deal, sealed under pressure from European paymaster Germany, spared small savers. It also side-stepped Cypriot lawmakers.

But by shifting the burden to big uninsured depositors, and winding down No. 2 lender Cyprus Popular Bank, it marks the death knell for the island’s business model as an offshore financial center drawing huge sums from wealthy Russians, Britons and international companies.

The government on Monday readied capital controls, measures to stem a flood of money from the island on Tuesday when banks are scheduled to open their doors again after a week of lockdown to prevent a run on deposits.

“Professionally, today is the worst day of my life,” said Chris Pavlou, who stepped down on Friday as vice-chairman of Popular Bank after almost four decades in banking.

The bank’s board, he said, “believed that the European Union would never let a systemic bank go down, they would never let Cyprus go down. It was only realized a week ago that maybe, maybe, the European Union and Europe were not bluffing.”

In Nicosia, Cypriots spent the morning-after sipping coffee in packed cafes bathed in sunshine.

Few will quickly forgive the threat to tap their accounts, nor will it pass unnoticed by the Spanish, Italians or Slovenians – the latter being the latest candidate for a bailout to save its debt-laden banks.

“The initial badly bungled European attempt to deal with the crisis will not be easily forgotten and will likely have a long-lasting negative impact,” said Laza Kekic, Cyprus and euro zone analyst at The Economist Intelligence Unit.

“The idea of the extraordinary levy on small deposits, even if now abandoned, will lead to capital flight and general uncertainty throughout the euro zone area.”

The pace of the unfolding drama, a month after Cypriots elected conservative President Nicos Anastasiades on a mandate to secure a bailout, has taken many by complete surprise.

Hundreds, up to 1,500 on Saturday evening, have protested almost daily. But there has been no hint of the violent rage that regularly scars the Greek capital, Athens, where the debt crisis erupted in 2009.

The EU says the bailout agreed in the early hours of Monday does not need the approval of the 56-seat Cypriot parliament, sparing the blushes of lawmakers who barely a week ago threw out a levy on deposits as “bank robbery.”

The decision has been taken out of their hands, giving fuel to criticism that democracy is being ignored in the fight to tame the crisis.

The perception has driven protest votes across southern Europe, a factor, perhaps, in a reported threat by Anastasiades during the Brussels talks to resign and call elections if lenders pushed him too hard.

The communist AKEL party, which lodged the country’s first request for a bailout in mid-2012, demanded a referendum on the deal.

Residents of Nicosia, waving Greek and Cypriot flags, lined downtown streets on Monday to watch a parade by students and soldiers marking Greek Independence Day.

“Cyprus is Greek,” they chanted. Some held banners that read, “Human rights haircut = betrayal.”

‘Haircut’ is now part of the everyday lexicon of the European debt crisis, like ‘bail-in’ and ‘troika’, the trio of international lenders and their suited envoys to which Cyprus is now beholden to the tune of €10 billion [$12.87 billion].

“On this day I’m proud to be Greek, but at the same time I feel humiliated,” said Marios Charalambous, the 56-year-old owner of a print shop.

He once had a factory printing T-shirts, but closed it in 2009 when the crisis began to bite, and now buys imported textiles from China and Bangladesh.

Charalambous said he hadn’t had a single customer since banks were ordered to close their doors a week ago. “We shouldn’t have to depend on Europe,” he said.

“I’m worried what will happen when the banks reopen. There’s so much anger. It feels like we’re buried in a well deep underground and we have to fight to reach the surface.”

For the past week Cypriots have been rationed to small ATM withdrawals, currently just €100 [$128.70] per day at the island’s two largest banks.

“I never imagined this,” said Michael Pilides, who heads Cyprus’ main business body, the Federation of Employers and Industrialists. “I expected some problems, but never this,” he said.

“It will have a major impact, but right now we don’t know how much. We don’t know what’s going to happen to the money in accounts to pay salaries, or money held in accounts for overseas payments.”

Etyk, a bank workers’ union, called the bailout deal “Eurogroup blackmail.”

It urged Cypriot lawmakers to honor a pledge to protect the pension fund of Cyprus Popular Bank employees. Trust in the government has been shattered.

Manthos Mavrommatis, a former chairman of the Cypriot Chamber of Commerce and owner of a company producing water pumps, said business was 50 percent down, but that he never imagined such a dramatic turn of events.

“We all had our heads in the sand, even when we heard the talk about the deposit levy we just thought it was a threat from the Europeans. But they meant it, because the banking system is sicker than we first thought.”

By Karolina Tagaris and Michele Kambas
NICOSIA, March 25 (Reuters) –

Was this article valuable?

Here are more articles you may enjoy.