NICOSIA - The chairman
of Cyprus's biggest commercial bank offered his resignation and
thousands of students protested in the capital as banks stayed shut to
stop a run on deposits after the island agreed a painful bailout to
avert bankruptcy.
The banks were ordered to remain closed until Thursday,
and even then will impose capital controls to prevent depositors from
stripping out all their funds.
A Reuters eye witness estimated up to 3,000 high school
students protested outside parliament, the first real expression of
popular anger after Cyprus agreed the 10 billion euro ($13 billion)
bailout with the European Union. Though the deal prevented a meltdown in
its banking system, it could also saddle the country with years of
austerity.
The chairman of the Bank of Cyprus, Andreas Artemis,
who found himself at the center of the financial turmoil gripping the
east Mediterranean island, offered to resign on Tuesday, a source at the
bank said.
"He sent a resignation letter this morning which will
be examined by the Board of Directors convening this afternoon," the
bank source said, requesting anonymity.
After returning from last-ditch negotiations in
Brussels, President Nicos Anastasiades said late on Monday that the
rescue plan agreed with international lenders was "painful" but
essential.
He agreed to close down the second-largest bank, Cyprus
Popular, and inflict heavy losses on big depositors, many of them
Russian, after Cyprus's outsize financial sector ran into trouble when
its investments in neighboring Greece went sour.
European leaders said a chaotic national bankruptcy
that might have forced Cyprus from the euro and upset Europe's economy
was averted. Investors in other European banks are alarmed by the
precedent of making depositors bear losses.
"The agreement we reached is difficult but, under the
circumstances, the best that we could achieve," Anastasiades said in a
televised address to the nation.
Many Cypriots say they do not feel reassured by the
bailout deal, however, and are expected to besiege banks as soon as they
reopen after a shutdown that began over a week ago.
Reversing a previous decision to start reopening at
least some banks on Tuesday, the central bank said late on Monday that
they would all now stay shut until Thursday to ensure the "smooth
functioning of the whole banking system".
TEMPORARY MEASURE
Little is known about the restrictions on transactions
that Anastasiades said the central bank would impose, but he told
Cypriots: "I want to assure you that this will be a very temporary
measure that will gradually be relaxed."
Finance Minister Michael Sarris said capital controls to prevent big outflows of cash would probably last "a matter of weeks".
Such controls are at odds with the European Union's
ideals of a common market but the government is anxious to prevent any
panic that would cause even more disruption to the economy.
The central bank has imposed a 100-euro daily limit on withdrawals from ATMs at the two biggest banks.
Without an agreement by the end of Monday, Cyprus
risked becoming the first country to be pushed out of the European
single currency - a fate that Germany and other northern creditors
seemed willing to inflict on a nation that accounts for just a tiny
fraction of the euro economy and whose banks they felt had overreached
themselves.
The plan will wind down the largely state-owned Cyprus
Popular Bank, known as Laiki, and shift deposits under 100,000 euros to
the Bank of Cyprus to create a "good bank", leaving problems behind in,
effectively, a "bad bank".
Deposits above 100,000 euros in both banks, which are
not guaranteed by the state under EU law, will be frozen and used to
resolve Laiki's debts and recapitalize the Bank of Cyprus, the island's
biggest, through a deposit/equity conversion.
PRECEDENT SET
The raid on uninsured Laiki depositors is expected to
raise 4.2 billion euros of the 5.8 billion euros the EU and IMF had told
Cyprus to raise as a contribution to the bailout, Dutch Finance
Minister Jeroen Dijsselbloem said.
Laiki will effectively be shuttered, with thousands of job losses.
Comments by Dijsselbloem on the need for lenders to
banks to accept the potential risks of their failure had a knock-on
effect in the euro zone, raising the cost of insuring holdings of bonds
issued by other banks, notably in Italy and Spain.
Senior members of the European Central Bank sought to
row back from Dijsselbloem's comments, insisting that Cyprus is a
special case and not a model for other countries that might need
rescuing.
Russia signaled it would back the bailout, even though
it would impose big losses on Russian depositors, who by some estimates
may hold a third of all deposits in Cypriot banks.
Cyprus's tottering
banks held 68 billion euros in deposits, including 38 billion in
accounts of more than 100,000 euros - enormous sums for a nation of
860,000 people that could never sustain such a big financial system on
its own.
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