Banks reopened Thursday in crisis-stricken Cyprus after a 12-day closure, but not everyone joined the queues, as small enterprises all over the island appeared to be on the verge of going under and unable to meet payrolls.
Lines of 30 or more formed outside many of the banks in the capital of Nicosia and in Limassol, the second biggest city, when they opened their doors at noon. Bank officials limited the number of people allowed inside to 10 or a dozen at a time.
To avoid a run on the two biggest banks, clients were limited to withdrawing $330 a day. But they can’t touch their deposits or savings or cash checks at least until next week, and possibly well after that, in what are said to be the first such capital controls in the 14-year history of the euro currency.
At Bank Laiki, which is to fold, and the Bank of Cyprus, which will be reorganized, depositors – who include individual savers, schools and universities, major corporations and Russian oligarchs allegedly laundering “dirty money” – might lose over 40 percent of their savings, or possibly more, beyond the insured amount of $130,000.
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The International Monetary Fund and eurozone financial institutions imposed the onerous “bail-in” to raise $7.5 billion, as the Cypriot contribution to accompany $13 billion that the European Central Bank will inject to stabilize the country’s banking sector.
Outwardly, Limassol, a port city of more than 180,000, appears to be thriving, with well-stocked shops and numerous fine restaurants. But for most of the tens of thousands who’ve moved here from formerly communist countries – there are at least 25,000 Russians – the bank opening gave little relief.
At Viva la Vida, a well-appointed Mediterranean restaurant with “very good food at very good prices,” there hasn’t been “a single customer in two weeks,” said immigrant waitress Lilia Cepraga, 37.
“Russians were the best clients” at the Ukrainian-owned restaurant, said Cepraga, who was born in the former Soviet republic of Moldova. She’s lived here 10 years and speaks six languages.
“I wake up every morning and read the Cyprus News,” an English-language daily newspaper, “and I get a headache. If I don’t get my salary, I could be out on the street. I don’t know if I have enough to make a sandwich for my 12-year-daughter tomorrow,” she said.
“Russians,” a designation loosely accorded to nearly anyone from the former Soviet Union, are a major presence in Limassol, working in banks, shipping firms and as white- and blue-collar workers. They also will be among the biggest losers in the reorganization, under which Cyprus’ second-biggest bank, the Bank Laiki, will fold into the biggest, the Bank of Cyprus.
At the outdoor terrace at the swank Four Seasons hotel overlooking the coast, cigar smoke wafted up from several tables Thursday as Russian businessmen discussed who the winners and losers would be in the crisis.
Sergei L., a Russian-born hedge fund analyst who asked that his last name not be used so that he might speak more frankly, moved to Cyprus with his wife and two children six months ago because of the high-quality English-language private schools and the beaches. “I like the environment. I don’t like what is going on in the economy,” he said.
He said the warning signs that Cyprus’ banks had stretched beyond their capacity, by paying high interest rates and gambling depositors’ funds in marked-down Greek government bonds, were visible two years ago.
“Our accounts are not in Cyprus,” he said. “We are not idiots.”
He said Russian oligarchs were among those likely to be the biggest losers when the two biggest banks took their “haircuts” on major depositors. But he said much of the funds were “not clear and clean. I don’t feel so bad for them.”
But other major Russian enterprises, including steelworks and other manufacturing industries, had deposited money in Cyprus because it earned higher interest and could be moved about much more easily than in the more regulated Moscow environment, he said.
Sergei said he wouldn’t invest in Cypriot real estate because it was priced at some two and a half times the real value. “It should be totally distressed before I move” into the market, he said.
Limassol’s Russian-speaking mayor, Andreas Christou, defended the presence of Russians and other East Europeans here as just another community, smaller in size than the Britons and Germans and followed by those of Israelis, Egyptians and other Arabs. He said allegations that Russians were using Cyprus as a money haven were nonsense.
“We are an open city,” he told visiting reporters.
As for the allegations that Russian oligarchs use Cyprus to launder money, the former national interior minister said, “I think some operations might be under question” but “these operations are taking place all over the world.”
“I don’t agree to accuse all businesspeople, including Russians, as gangsters,” he said.
The main surprise of the banks’ reopening was how smoothly it appeared to go, at least on the first day.
Cypriot President Nicos Anastasiades expressed his “deep appreciation towards the Cypriot people for the maturity and spirit of responsibility they have shown at a critical time for the stability of the Cypriot economy."
But many Cypriots see the harsh price imposed on savers and depositors as part of a plot by Germany and other northern European countries to seize financial advantage.
Even Christou, a relative moderate who’s viewed as a contender for the top office on the island, seemed to buy into the conspiracy theory. He said Anastasiades’ accession to the European Union’s demands “was done under the extreme pressure of our European partner” and that many Cypriots thought it was “a punishment.”
“To a certain extent, I agree,” he said. “Somebody wanted to kill the international business in Cyprus, to expel Russians from Cyprus and to invite them to other financial centers.