Earlier this week, I noted that the banks in Cyprus will be opening Thursday, once the regular people had time to embrace the levy and understand all the awesome goodness in the new bailout plan.
Shockingly, the Cypriots are still not down with the political solution to the banking crisis. Guards are now being posted in front of banks, in anticipation of Thursday’s return to business:
Cyprus reopens its banks on Thursday while limiting withdrawals, banning cheques and curbing the use of Cypriot credit cards abroad, among measures imposed to avert a bank run after it agreed a tough rescue deal with international lenders.The Central Bank said banks would open their doors at midday (6 a.m. EST) on Thursday after nearly two weeks when Cypriots could only get cash through limited ATM withdrawals.A central bank official said Cypriots would be allowed to withdraw no more than 300 euros ($380) a day.
This action indicates that Cypriot authorities are deeply concerned about a fiscal emergency.
Meanwhile, Germany’s Der Spiegel has a report that not every affected depositor is taking a hit (hat-tip, W.C. Varones). Actually, this news may explain the need for guards to protect the banks from “the little people”.
Most of all, though, the central bank head has been harshly criticized due to the suspicious capital flight from Laiki and the Bank of Cyprus, the two institutions that have been hit hardest by the Cypriot banking crisis. There are indications that large sums flowed out of the two banks just before the first bailout package was signed in the early morning hours of March 16. At the end of January, some 40 percent of all savings held in Cypriot accounts were on the books of those two banks. Since then, however, much of it has been transferred elsewhere, despite orders from the central bank that accounts at the two institutions be frozen.‘Special Payments’The central bank now stands accused of not doing enough to control the movement of capital. Transfers for humanitarian aid were permitted which, while certainly an acceptable exception, opened a loophole for abuse. Many are also furious that the bank allowed “special payments,” the definition of which was never adequately established.The Cypriot central bank has defended itself by saying that it was impossible to completely prevent all transactions, despite the account freeze. Much of the money was withdrawn from overseas, where Cyprus had no authority. Branches of Cypriot banks in non-euro-zone countries such as Russia and Britain do not answer to the European Central Bank. Their liquidity is controlled by central banks in those countries.Such a defense is nothing less than a voluntary admission of impotence. Holders of smaller savings accounts have been unable to access much of their money for almost two weeks, companies have been unable to pay their suppliers and across the country people are concerned that their salaries will not arrive on schedule on the first of the month. Meanwhile, rich businesspeople and those with connections overseas have been able to transfer their money into foreign accounts.
In fact, the first ripples of this fiscal tsunami are being reported in the Financial Times by a Laiki client, one of the “regular” citizens:
On Monday, EU officials pronounced Cyprus saved after the country agreed terms with international lenders on a €10bn bailout.On Tuesday morning, Elena Antoniou, a Cypriot interior designer, fired her staff.“I told them, ‘Guys, three months of part-time and then we’re closing’,” Ms Antoniou recalled. Her firm had been working on a 3,000 sq m project at the insurance arm of Laiki, the country’s second-largest bank. But, as a condition of the bailout, Laiki is now in liquidation.Ms Antoniou’s contractor on the project was a Laiki customer. With his accounts at the bank frozen, he has let go of all but six of his 25 staff. “He called me this morning and said, ‘I’m terrified. I’m ruined’,” she said.
And the once the first wave hits Cyprus, there will be no telling how far it travels.
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