Discuss as:

Cyprus banks ordered closed to halt panic withdrawals

Yorgos Karahalis / Reuters

Demonstrators raise their arms in protest as Cypriot President Nicos Anastasiades's convoy drives to the parliament in Nicosia, Monday.

LONDON — Banks in Cyprus will remain closed until Thursday to prevent panic withdrawals in the wake of a surprise bailout plan that has sent money markets into a tailspin, the country's government announced Monday.

Ministers met Monday to revise a plan to seize up to 10 per cent from bank accounts held on the Mediterranean island — the price of a deal, brokered by the European Union and the International Monetary Fund (IMF).

Cypriots and foreign investors emptied ATMs following Saturday’s unexpected 10 billion euro ($13 billion) deal under which savers must surrender up to 10 percent of bank deposits. Banks in Cyprus were due to remain closed because of a public holiday Monday.

A debate on the measure has been delayed until Tuesday. Meanwhile, the country’s banks, already shut on Monday for a bank holiday, will remain closed on Tuesday and Wednesday to avert any panic.

Adding to the uncertainty, Greek media reports on Monday suggested Russian energy giant Gazprom might offer Cyprus an alternative to the bailout. 

Russian citizens account for the majority of the billions of euros held in Cypriot banks by foreign depositors, and Moscow has already given the Mediterranean country a sovereign loan to ease its financial crisis.

Russia’s president Vladimir Putin criticized the bailout as "unfair, unprofessional and dangerous," Reuters said, citing a spokesman.

The Economist also criticized the deal, describing it as "unfair, short-sighted and self-defeating."

Financial markets in Europe fell sharply in early trading Monday following the surprise announcement of a levy on bank accounts in Cyprus as part of a financial bailout.

Markets in Italy and Spain — countries regarded at the highest risk of further financial crisis – saw some of the biggest share falls, particularly in the banking sector.

Katia Christodoulou / EPA

A woman unsuccessfully attempts to withdraw from a Cypriot bank ATM in Greece on Sunday.

"It's a Cyprus shock,” Ken Hasegawa, a commodity sales manager at Newedge in Tokyo, told Reuters.

The bailout caused dismay in Cyprus. "They shouldn’t touch the deposits. They’re just killing the people," 58-year-old Miltiades Papamiltiades, an unemployed former construction worker, told the English-language  Cyprus Mail news site. "No one will ever deposit money again into the banks on the island. It is the end of our economy," he added.

Of the $90 billion deposits held in Cyprus banks, a little under half is held by non-residents, mostly Russian.

Alex Spillius, of the U.K.’s Daily Telegraph, reported that Cyprus in recent years had become, like off-shore haven Monaco, "something of a sunny place for shady people." He wrote:

"By 2011, the IMF reported that the assets of Cypriot banks were equivalent to 835 per cent of annual national income. Some of that was down to investment by foreign-owned banks, but most was Cypriot.

This imbalance might have been sustainable had the country’s two largest banks not made loans to the Greek government worth 160 per cent of Cypriot GDP. It has never been clear whether that risk was taken out of ethnic solidarity, or from a presumption that the Greeks knew what they were doing. But in any event, it was disastrous."


Photoblog: 'Hands off' say Cypriot protesters to EU bailout plan

Spain's economic crisis turns middle-class families into illegal squatters

'The country is on its knees': Ireland grapples with economic collapse

Greek tragedy: Economic crisis sparks brain drain


This story was originally published on