Finance Minister Michael Sarris sought to muffle calls for Cyprus to weigh a precedent-setting exit from the euro to ease the economic pain inflicted by the country’s 10 billion-euro ($13 billion) bailout.
The option of eventually pulling out of the currency was floated yesterday by a Nobel prize winner now advising the government, Christopher Pissarides, and Nicholas Papadopoulos, head of the parliament’s finance committee.
“It would be catastrophic to even talk or entertain the idea and much less exit the euro zone,” Sarris said in a Bloomberg Television interview with Ryan Chilcote in Nicosia today. “Our place is in Europe, our place is in the euro zone and we will do whatever it takes to stay there.”
Restrictions on money transfers probably won’t be loosened for weeks as the island digests the impact of the European decision to close the second-largest Cypriot bank and impose losses on uninsured depositors, he said.
Cypriot banks have been closed except for limited cash-machine withdrawals since an initial, later revised, rescue accord was reached on March 16. The government yesterday extended the bank holiday until Thursday, to get the island’s financial plumbing ready.
Controls on capital movements to prevent money from draining out of the banking system — allowed in exceptional circumstances under European Union law — will remain for “a matter of weeks,” Sarris said.
Sarris said restrictions may be “less stringent” on banks other than Bank of Cyprus Plc, the largest bank, which will take over viable assets left over from the shutdown of Cyprus Popular Bank Pcl (CPB), the second-largest.
“We are having deliberations together with bankers and our partners to see what is the right balance between controls that will not cripple the economy, that will allow the economy to function,” Sarris said.
Cyprus’s 18 billion-euro economy is the third smallest in the 17-nation euro area. Before the bailout, which was coupled with an austerity package, the European Commission predicted a contraction of 3.5 percent in 2013. Economists said afterward that the damage will be greater.