Cyprus banks to reopen under tight security

Armed police guard cash deliveries

Security is tight in Cyprus as banks prepare to reopen nearly two weeks after closing while a controversial bailout was negotiated.

Armed police were on guard as lorries said to be loaded with cash arrived at the central bank on Wednesday night.

Demonstrators took to the streets to protest against the bailout plan and strict capital controls.

The restrictions on the free movement of capital represent a profound breach of an EU principle, correspondents say.

Cyprus is the first eurozone member country to bring in capital controls.

Customers will be limited to withdrawing 300 euros ($383; £253) a day, to prevent everyone fleeing with their savings.

Depositors with over 100,000 euros will also see their savings taxed in exchange for bank shares as Cyprus seeks to raise 5.8bn euros to qualify for a 10bn-euro bailout from the European Union, European Central Bank and the International Monetary Fund, the so-called troika.

An earlier plan to tax small depositors was vetoed by the Cypriot parliament last week.

Run fears

Correspondents say some fear a stampede as banks in Cyprus reopen between noon and 18:00 local time (10:00-16:00 GMT), nearly two weeks after they closed and progressively stricter limits were placed on withdrawals at cash machines.

Armed police are on guard and hundreds of staff from the private security firm G4S will be guarding bank branches and helping to transport money, said the AP news agency.

Severe new rules have been imposed on money movements to prevent a torrent of money leaving the island and credit institutions collapsing.

As well as the 300-euro daily withdrawal limit, Cypriots may not cash cheques. They can spend up to 5,000 euros on debit and credit cards.

Payments of over 200,000 euros require prior approval by a specially established committee – only the Cypriot government and its Central Bank are excluded.

There is a cap of 5,000 euros on transactions with other countries and travellers leaving the country will only be allowed to take 1,000 euros with them.

On Wednesday night, hundreds of protesters rallied outside the presidential palace, chanting: “I’ll pay nothing; I owe nothing,” the Reuters news agency reported.

Cyprus Finance Minister Michalis Sarris insists the controls are temporary, but many economists predict they could be in place for months.

The unprecedented restrictions represent a profound breach of an important principle of the European Union that capital, as well as people and trade, should able be to move freely across internal borders, says the BBC’s economics correspondent Andrew Walker.

Meanwhile, depositors in Cypriot banks with more than 100,000 euros could see 40% of their funds converted into bank shares.

Bank merger

Bank of Cyprus chief executive Yiannis Kypri confirmed he had been removed as head of the bank, which is the country’s largest commercial lender.

He said that he was forced to quit “upon demands of the troika”, which comes after an administrator had been appointed to Bank of Cyprus to restructure the bank. It is being merged with the “good” parts of the failed Laiki Bank, which will be closed down.

But a European Commission spokesman denied that the troika had demanded Mr Kypri’s removal.

Bank of Cyprus chairman Andreas Artemis handed in his resignation on Tuesday, along with four other directors, but the bank’s board rejected the resignations.

Panicos Demetriades, the central bank governor, then sacked the entire board, according to the Cyprus News Agency.

Mr Demetriades was widely criticised on Tuesday for suggesting that Bank of Cyprus was going to be wound up in the same way as is planned for Laiki Bank.

His comments led to demonstrations, calls for his resignation from Bank of Cyprus staff, and a hastily-drafted denial from Mr Sarris.