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Pavlos Vrionides/AP/Press Association Images
Cyprus

Updated: All banks in Cyprus will now stay closed until Thursday

Earlier it had been reported that all banks, aside from the country’s two biggest financial institutions, would reopen tomorrow.

Updated 10.05pm

IN A REVERSAL of an earlier announcement that some banks would open tomorrow, the Cypriot finance minister now says that all of its banks will remain closed until Thursday.

The announcement tonight came hours after the central bank had said all banks except the country’s two largest lenders, Laiki and Bank of Cyprus, would open on Tuesday morning.

It had been thought that banks on the island except for its two biggest lenders, the worst-hit by the financial crisis, would open their doors on Tuesday after the lock down aimed at averting a run on deposits.

In addition to all other banks the Bank of Cyprus and Laiki, or Popular Bank, will remain closed until Thursday to give officials time to adjust to measures imposed under the EU-led bailout.

The 11th-hour agreement deals a major hit to investors and depositors in the island’s biggest bank, the Bank of Cyprus, many of whom are Russian, and will also effectively shut down Laiki, its second-largest lender.

President Nicos Anastasiades tweeted he was “content” before flying home from marathon Brussels talks that sealed the agreement in the early hours, which briefly rallied European markets before dealers began to fret about the cost of the deal.

Echoing the sentiment of his people, Foreign Minister Ioannis Kasoulides took aim at EU member states that pressed for the onerous measures when he said there was “no place for pressure, threats and blackmail”.

“It’s a disaster. To me it’s too little and too late,” Tudor Neagu, a Laiki Bank customer said as he tried and failed to withdraw cash from an ATM in Nicosia. “I doubt Cyprus will ever revive again.”

The Cypriot authorities have already started to implement the hard-fought agreement, with the central bank naming Andri Antoniades as administrator for Laiki.

Laiki wound up

Under the agreement, Laiki is to be wound up and major depositors at the Bank of Cyprus will face a “haircut” of 30 percent, government spokesman Christos Stylianides said.

“A disorderly default was avoided, which would have meant leaving the eurozone, with devastating consequences,” he said. Without doubt that there are painful aspects that will place a burden on all of us,” he acknowledged nonetheless.

The deal spares all depositors with less than €100,000 euros in the island’s banks, a key condition missing from a previous agreement the Cypriot parliament rejected last week.

German Chancellor Angela Merkel, whose government took a hard line in the talks, said she was “very pleased that a solution for Cyprus was successfully reached last night which meant that the country’s insolvency was averted”.

The deal represents a “fair distribution” of the burden and “also requires those who have contributed to causing these undesirable developments to take responsibility,” she said.

A big unknown remained the reaction of Russian investors, who hold €24 billion euros in private and corporate accounts in Cyprus.

But President Vladimir Putin suggested Russia could pitch in to the Cyprus bailout by easing the terms of a €2.5 billion loan in the wake of the agreement with Brussels.

The fallout will begin immediately with food and medicine shortages likely in coming weeks as businesses struggle with a lack of cash in Cypriot banks, which were hammered by the agreement, said economic experts.

The final bailout will also probably involve a government austerity programme, privatisations and tax increases at a time of deepening recession given job losses at banks and companies losing out on deposits.

Economists have forecast the Cyprus economy could now contract by at least 10 per cent this year and by 8 per cent in 2014.

© AFP 2013, with reporting from Associated Press.

More: Eurozone head insists Cyprus deal not template for future bailouts

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