Currency Controls In Cyprus Increase Worry About Euro System

Andrew Higgins On a visit to Athens this year, Marios Loucaides, a Cypriot businessman, saw an apartment he liked in the Greek capital and decided to buy it. He told the owner he would seal the deal with a bank transfer once he got back to Cyprus. After returning home, however, Loucaides discovered that the euros he had on deposit in Cyprus could not be moved to Greece, even though the 2 countries share the same currency and, in theory, the same commitment to the free movement of capital. The apartment deal collapsed, along with Loucaides’s belief that Europe has a common currency. Tangled in restrictions imposed in March as part of a bailout for the country’s ailing banks, a euro in Cyprus is no longer the same as one in France, Germany or Greece. “A Cyprus euro is a second-class euro,” said Loucaides, the managing director of the Cyprus Trading Corporation. Capital controls, once used frequently by governments in times of crisis, are rare in Europe but not unheard of. Iceland, which is not a member of the EU and uses its own currency, imposed them in 2008 after its 3 main banks imploded. Cyprus is the first nation using the euro to restrict the flow of capital, raising a crucial question: Has the breakup of the Eurozone (something leaders have been struggling to prevent with bailout packages worth hundreds of billions of euros) already started? President Anastasiades of Cyprus thinks so. “Actually, we are already out of the euro zone,” he said, citing restrictions on the movement of euros from Cyprus as evidence that his country’s money now has a different status and value from that in France, Germany and the 14 other European Union nations that use the currency. Click to Read Full Article