Officials in Cyprus have decided that banks should reopen after a bailout deal was agreed with international lenders to avoid a possible financial meltdown. European leaders have expressed relief at the deal.
Cypriot banks were to reopen on Tuesday, except for the country’s two largest lenders which were worst hit by the financial crisis.
The Bank of Cyprus and Laiki will stay closed until Thursday so that officials have time to apply conditions of the bailout to tax savings above 100,000 euros ($128,900).
Under the terms of the bailout, customers with large accounts in both banks would pay a significant, but as yet unspecified, levy. An earlier plan that would have seen accounts of less than that threshold taxed- and a lower levy on large accounts - was dropped amid outrage from the Cypriot public.
In a televised speech on Monday evening, President Nicos Anastasiades said his government was prepared to take all measures to restore financial stability to the country. He said limitations on transactions would be introduced on Tuesday, but this would only be "very temporary."
"My thoughts have been with you and I’ve made it my business to overcome this obstacle," said Anastasiades. "It’s been a difficult fight but we leave behind the uncertainty that we’ve had over the last months. We look with optimism into the future. There’s a new day for Cyprus tomorrow."
Eurozone countries being asked to participate in the deal had insisted that it could not come purely from national governments, but that bank customers should shoulder some of the burden.
German Chancellor Angela Merkel said she was satisfied with the outcome, adding that the agreement represented a fair distribution of the responsibility for Cyprus' problems.
"I am very pleased that a solution for Cyprus was successfully reached last night which meant that the country's insolvency was averted," Merkel said on Monday.
"On the one hand, the banks must take responsibility for themselves. That's what we have always said. We don't want taxpayers having to save banks but that banks save themselves."
Nicosia pushed to reform
The German chancellor added that Europe would stand by Cyprus, provided that the island nation went ahead with reforms such as privatization and a rise in taxes.
European Commission President Jose Manuel Barroso also expressed relief, but added that Cyprus would be responsible for whether the deal worked or not.
"I am confident that the program will work, but let's be honest," said Barroso. "At this moment, we cannot say exactly what the impact is going to be," he told a news conference. "It will depend on the level of implementation and the commitment of Cyprus itself."
International creditors have, in part, attributed the country's business model of attracting foreign investors with low taxes and relaxed financial regulation as partly responsible for the financial problems experienced by Cyprus. The country - which has close trading and cultural links with Greece - has also faced the task of recapitalizing banks that were badly hit when a proportion of Greece's sovereign debt was written off.
rc/kms (AFP, AP, dpa, Reuters)