NICOSIA, Cyprus – Cyprus’ central bank tried to kickstart spending in a country left reeling by a 10-day bank closure and financial near-collapse by telling Cypriots on Friday that there were no limits on domestic debit and credit card transactions.
The central bank made the announcement to clarify the capital control rules it introduced this week to prevent a run on the country’s banks.
The banking authority said that, while there is a 5,000 euro ($6,402.50) limit on credit and debit card purchases abroad, there were no such limits on similar domestic transactions and money transfers.
Cyprus’s banks reopened Thursday after being ordered shut March 16 to prevent people from draining their accounts as politicians scrambled to save the country’s stricken financial sector.
The country on Monday agreed to make bank bondholders and big depositors contribute to the rescue in order to secure 10 billion euros ($12.9 billion) in loans from the eurozone and the International Monetary Fund.
One bank, Laiki, is to be split up, with its nonperforming loans and toxic assets going into a “bad bank.”
The healthy side will be absorbed into the Bank of Cyprus.
Savers with more 100,000 euros in both Bank of Cyprus and Laiki will face big losses – possibly as much as 80 cents on the euro.
Fearing savers would rush to empty their accounts once the banks reopened, the country imposed daily withdrawal limits of 300 euros ($384) for individuals and 5,000 euros for businesses – the first so-called capital controls that any country has applied in the eurozone’s 14-year history.
Cyprus’s president called on the country Friday to “share the burden” of solving its financial crisis.
“The deal we agreed on, after the dramatic hours we all lived through last week, is without doubt painful,” President Nicos Anastasiades said during a speech at a civil servants union convention.
“Everyone will have to make sacrifices as our financial situation, in the violent way in which it has developed, will oblige all of us to share the burden” to reform the economy, he added.
Banks opened normally Friday for the second day without a feared crush of people trying to get at their money.
“This is a situation imposed on us but we will get over this as well,” said Yiannis Athienitis outside a Nicosia convenience store. “The restrictions are of course helpful at these times, in order to avoid panic.”
Other restrictions include a 1,000 euro cap on the amount people are allowed to take with them on trips abroad, prompting criticism from some travelers.
“A thousand euro per person to get out of the country is a very little amount, said Modestos Christodoulou at Larnaca airport before catching a flight back to London. “How are you supposed to live on just a thousand euros? It’s impossible.”
When it comes to debit and credit card transactions, Cyprus has no cashback scheme allowing consumers to pay with their cards while getting cash at the same time. Retailers normally only offer store or card credit on returned goods.
Financial strains are building on families and businesses, and the recession in Cyprus is likely to deepen.
Cyprus’s banks became much bigger than the country’s government could afford to rescue – more than seven times the size of the country’s economy. When the banks were hit by large losses and Cyprus could not afford to bail it out on its own, the country turned to the other 16 European Union countries that use the euro.
The manager of one popular Nicosia supermarket said that the business has so far weathered the restrictions fairly well as products shelves continue to be restocked.
“Some problems arose with a few suppliers giving us problems regarding payment, but I can’t say that they were serious because we have alternative choices regarding supply,” the manager said on condition of anonymity because he wasn’t authorized to speak to media.
The national hotel association urged its members to support the country by buying locally made products and opting to hire Cypriots.
“In these critical hours, we have to support one another and those most vulnerable groups among us,” a Cyprus Hotel Association statement said.
Cyprus Foreign Minister Ioannis Kasoulides has said that restrictions were expected to be fully lifted in about a month.
However, in spite of the turmoil of the past weeks and harsh conditions of the rescue, Anastasiades stressed that his country’s future lay firmly within the euro.
“We are not going to leave, I stress, from the euro. .... We will not, I stress, endanger the future of our country with dangerous experimentation.”
The Cypriot president again struck back at what he called the “callousness” of Cyprus’ euro area partners for making “unprecedented demands leading Cyprus to become an experiment” without guaranteed success.
Cypriot member of the European Parliament Takis Hadjigeorgiou said Cyprus may not be an isolated case where depositors were forced to take a hit on their savings, despite high-ranking European Union officials insisting that this was a strict one-off.
“Always we have to think that whatever once happened, may happen again,” Hadjigeorgiou told the AP.
Meanwhile, government spokesman Christos Stylianides said that authorities would look into media reports about a leaked list of politicians and other high-profile individuals who had bank loans written off.
Stylianides said an investigating committee composed of three former Supreme Court judges would probe such allegations.
Also Friday, the central bank updated regulations on the amount of cash a person could take from the internationally recognized Greek-speaking south to the breakaway Turkish Cypriot north. While Cypriots can only carry 300 euros a day, foreign nationals will be allowed to have 500 euros. Cyprus was divided in 1974 when Turkey invaded after a coup by supporters of union with Greece.