Last updated: March 26. 2013 11:46PM - 659 Views

Cypriot students protest for social justice and against the government levies on private savings Tuesday at the entrance of the presidential palace in the capital Nicosia.
Cypriot students protest for social justice and against the government levies on private savings Tuesday at the entrance of the presidential palace in the capital Nicosia.
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NICOSIA, Cyprus — Cypriot businesses were under increasing strain to keep running on Tuesday after financial authorities stretched the country’s bank closure into a second week amid fears that depositors will rush to drain their accounts.


Cyrpus’s central bank governor, Panicos Demetriades, said “superhuman efforts are being made” to open banks on Thursday.


“Temporary” restrictions will be imposed on financial transactions once the banks do, he said, but would not specify what those restrictions would be or how long they would be in place for.


“We have to restore the public’s trust in banks,” he said.


All but two of the country’s largest lenders had been due to reopen Tuesday, after being shut since March 16 to stop savers from withdrawing all their money from the banks while politicians figured out how to raise the funds necessary for Cyprus to qualify for an international bailout.


However, the central bank made a surprise reversal just before midnight, announcing all banks would remain closed until Thursday.


The original idea had been not to impose restrictions if the banks opened Tuesday, Demetriades said, “but now we’re obligated to do so” because as each day goes by, more people would want to pull their money out.


“We have to all understand that we live in very critical times, officials of the government and the central bank are working day and night,” he said.


Under the deal for a 10 billion euro ($12.9 billion) rescue clinched in Brussels early Monday, Cyprus agreed to slash its oversized banking sector and inflict hefty losses on large depositors in troubled banks.


The bulk of the funds will be raised by forcing losses on accounts of more than 100,000 euros ($129,000) in the country’s second- largest lender, Laiki, with the remainder coming from tax increases and privatizations.


The bank will be dissolved immediately into a so-called bad bank containing its uninsured deposits and toxic assets, with the guaranteed deposits being transferred to the nation’s biggest lender, Bank of Cyprus.


Deposits at Bank of Cyprus above 100,000 euros will be frozen until it becomes clear whether or to what extent they will also be forced to take losses. Those funds will eventually be converted into bank shares.


A top European Central Bank official, Benoit Coeure, who sits on the bank’s six-member executive board, told France’s Europe 1 Tuesday that the plan to keep the banks closed was sensible as “there is still a lot of work to do on the ground.”


Nonetheless businesses have already been feeling the brunt of the cash crunch, unable to pay salaries and suppliers as Cypriots has slashed spending to keep as much money on them in light of all the uncertainty surrounding the banks.


The banks’ closure has been felt in the country’s important shipping industry, which contributes about 5 percent or 800 million euros ($1 billion) to the economy.


Cyprus ranks 10th in the world in terms of the number if ocean-going vessels flying its flag, and it in the top five of countries with the largest number of ship management companies.



Other businesses have also been hammered by the bank closures as they find themselves unable to pay suppliers or fulfill orders.


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