Cyprus banks reopen amid tension over possible large scale withdrawals

Cyprus banks have reopened after a two-week closure sparked by the EU-IMF bailout negotiations, amid tension over possible large scale withdrawals.

Branches were replenished with cash overnight and police and private security guards deployed amid fears of a run on the banks by customers.

Banks customers face strict controls on the amount they can withdraw each day.

The restrictions on the free movement of capital represent a profound breach of an EU principle.

However, the European Commission on Thursday justified the move, saying the “stability of financial markets and the banking system in Cyprus constitutes a matter of overriding public interest”.

Cyprus is the first eurozone member country to bring in capital controls.

Cyprus needs to raise 5.8 billion euros to qualify for a 10 billion-euro bailout from the EU, ECB and the IMF, the so-called troika.

As part of the bailout plan, depositors with more than 100,000 euros in Cypriot banks will see their savings taxed in exchange for bank shares.

An earlier plan to tax small depositors was vetoed by the Cypriot parliament last week.

Branches began to open at noon local time and will close at 18:00.

Some armed police have been deployed and hundreds of staff from the private security firm G4S are guarding bank branches and helping to transport money.

The stock exchange, shut since March 16, remains closed on Thursday and will not reopen until after Catholic Easter.

In a statement issued on Wednesday, the ministry of finance insisted the capital control measures were temporary and were needed to “safeguard the stability of the system”.

It read: “The Central Bank of Cyprus and the government of Cyprus will review them each day, with a view to progressive lifting of the measures as soon as circumstances allow.”

The severe new rules have been imposed to prevent a torrent of money leaving the island and credit institutions collapsing.

As well as the daily withdrawal limit, Cypriots may not cash cheques.

Payments and/or transfers outside Cyprus via debit and or credit cards are allowed up to 5,000 euros per person per month.

Transactions of 5,000-200,000 euros will be reviewed by a specially established committee, with applications for those over 200,000 euros needing individual approval.

Travellers leaving the country will only be allowed to take 1,000 euros with them.

On Wednesday night, hundreds of protesters rallied outside the presidential palace, chanting: “I’ll pay nothing; I owe nothing,” the Reuters news agency reported.

Many economists predict the controls could be in place for months.

The unprecedented restrictions represent a profound breach of an important principle of the EU that capital, as well as people and trade, should able be to move freely across internal borders.

However, the European Commission said member states could introduce capital controls “in certain circumstances and under strict conditions on grounds of public policy or public security”.

But it added that “the free movement of capital should be reinstated as soon as possible”.