As the drama of the Cypriot bailout effort continued for a 10th consecutive day on Sunday, fears of contagion from the island’s crisis and from the pattern of bank deposit haircut are spreading across the eurozone, which is determined to hold on to Cyprus.
As President Nicos Anastasiades and Finance Minister Michalis Sarris fly to Brussels to fine-tune the deal with the troika of the island’s prospective creditors ahead of the evening meeting of the Eurogroup, the governor of the Bank of France confirmed that Cyprus is to remain an integral plan of the eurozone.
“Cypriot banks have for years been taking the kinds of risks that are not allowed in France,» governor Christian Noyer told French newspaper Le Journal du Dimanche on Sunday.
“Nobody wants Cyprus to leave the euro,» he said. «The first people to suffer would be Cypriot citizens.”
“I don’t see any major contagion issues,” Finnish Prime Minister Jyrki Katainen told reporters in Saariselkae, Finnish Lapland, on Saturday. “I’m very confident that we can see solutions on Sunday or Monday.”
Ordinary Cypriots have been outraged by the levy and stunned at the pace of the unfolding drama. They elected Anastasiades in February on a mandate to secure bailout and save banks whose capital was wiped out by investments in Greece, the epicenter of the eurozone debt crisis.
But for the past week they have been besieging cash machines ever since bank doors were closed on the orders of the government to avert a massive capital flight. Anticipating a run on banks when they reopen on Tuesday, parliament has given the government powers to impose capital controls.
On Saturday, some 1,500 protesters, many of them bank workers, marched on the presidency, holding banners that read, «No to the bankruptcy of Cyprus» and «Hands off workers’ welfare funds».
The levy on bank deposits represents an unprecedented step in Europe’s handling of a debt crisis that has spread from Greece, to Ireland, Portugal, Spain and Italy.
Cypriot leaders had initially tried to spread the pain between big holdings and smaller depositors, fearing the damage it would inflict on the country as an offshore financial haven for wealthy foreigners, many of them Russians and Britons.
The tottering banks hold 68 billion euros in deposits, including 38 billion in accounts of more than 100,000 euros – enormous sums for an island of 1.1 million people which could never sustain such a big financial system on its own.