The full extent and duration of capital controls measures to be introduced by Cyprus to prevent cash flight from the island remained unclear yesterday (25 March), as the European Commission launched a task force to help ease the island’s plight.
President Nicos Anastasiades told Cypriots yesterday (25 March) that the EU bailout agreed was “painful but essential."
Banks will remain closed until Thursday and capital controls will be maintained in order to prevent a run on deposits.
Commission officials said that capital controls in Cyprus are only likely to be implemented for a short time.
“Any measures to restrict or limit freedom of movement may only be enacted exceptionally and temporarily and that is what has been requested by the Cypriot authorities,” said Internal Market Commissioner Michel Barnier.
Bank controls tough but justified
Barnier said that such controls will mean very tough restrictions on bank account access and the movement of cash out of Cyprus, to help prevent a bank run. The Commission will monitor the controls on an ongoing basis, officials said, to ensure that they were justified.
Other EU officials acknowledged that controls could last months rather than days, adding that the EU executive could not comment substantively until they saw full details of the control measures, which represent a first within the eurozone.
Such controls have been applied in other European countries such as Iceland, but never within the eurozone, where they will have the effect of ring-fencing capital markets in a part of the currency bloc.
Russia's take on Cyprus
Meanwhile, Russian Prime Minister Dmitry Medvedev said that losses imposed on big depositors – many of them Russian – amounted to "stealing".
"What is going on around Cyprus is that they are continuing to plunder loot there," Medvedev said.
"It is necessary to understand where this story will lead, and what its consequences will be for the international financial system and our interests," he added, in comments that drew no response from the EU executive.
In an interview with the Financial Times yesterday (25 March), Eurogroup head Jeroen Dijsselbloem put pressure on the euro, which fell by more than a cent against the US dollar after he said that the Cyprus rescue should be seen as a template for the rest of the eurozone.
Dijsselbloem argued that Europe could now take a new approach to tackling struggling banks.
“What we've done last night is what I call pushing back the risks. If there is a risk in a bank, our first question should be 'Okay, what are you in the bank going to do about that? What can you do to recapitalise yourself?” he told the newspaper.
New initiatives by the Commission sought to protect Cyprus and rectify the underlying problems affecting bank liquidity.
New task force for Cyprus
Commission President José Manuel Barroso announced the creation of a task force to provide technical assistance to the Cypriot authorities, with a strong focus on employment, competitiveness and growth.
The task force will be based in Brussels, with a support team in Nicosia, and will provide quarterly progress reports to the Cypriot authorities and the Commission. Commission Vice president Olli Rehn will coordinate it.