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Greek Cyprus finance minister quits, capital controls partly eased

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(Globalpost/GlobalPost)

Greek Cypriot Finance Minister Michael Sarris quit on Tuesday after concluding talks with foreign lenders on a bailout that forced the island to slap unprecedented losses on bank depositors in return for aid.

The news came after Greek Cyprus announced a partial relaxation of currency controls, raising the ceiling for financial transactions that do not require central bank approval, but keeping most other restrictions in place.

Sarris, who was dispatched to Moscow last month but returned empty-handed as Greek Cyprus sought Russian aid after rejecting a European bank levy proposal, said his main goal of agreeing a deal with lenders had been accomplished.

He said it was also appropriate to resign since he was among several people under scrutiny by a team of investigators looking into the collapse of the country's banking system. His resignation was accepted by the government.

"I believe that in order to facilitate the work of (investigators) the right thing would be to place my resignation at the disposal of the president of the republic, which I did," Sarris said.

Before quitting, he said it was not clear when the remaining capital controls would be lifted. The island introduced curbs on money movements when banks reopened on March 28 after a two-week shutdown while the government negotiated a 10 billion euro bailout from the International Monetary Fund and the European Union.

Greek Cyprus's status as a financial hub has crumbled in the space of a fortnight after authorities were forced to wind down one bank and slap heavy losses on wealthier depositors in a second in return for the financial aid.

Its capital controls are a first for the euro zone, introduced by Greek Cyprus as it strives to prevent a cash drain. A finance ministry decree on Tuesday, the third since controls were first introduced, raised the ceiling on transactions which do not require central bank approval to 25,000 euros from 5,000 euros. It also permits the use of cheques worth up to 9,000 euros per month.

Other restrictions introduced last week, including a 300 euro per day cash withdrawal limit and a 1,000 euro limit on the amount travellers can take overseas, remain in place.

The decree - signed by Sarris and dated April 2 - is valid for two days. Greek Cypriot officials have said it could take up to a month for restrictions to be fully removed.

Greek Cypriot leader Nicos Anastasiades, who has been in power for just over a month, says he was forced to accept onerous terms imposed by lenders to avert a default and an exit by the island from the euro zone.

Under the terms of the deal, Greek Cyprus will have until 2018 to carry out measures to shore up its finances and begin to receive aid starting in May.

The island will pay an interest rate of 2.5 percent on its rescue loans, with repayment starting in 10 years. The loans will repaid over 12 years.

On Tuesday, Anastasiades appointed three retired Supreme Court judges to investigate political, civil and criminal responsibilities over the demise of the economy, one of the bloc's smallest.

Greek Cyprus last week agreed to break up its No. 2 lender Popular Bank, kept on an ECB liquidity lifeline for months, into a "good" and a "bad" bank. The bank's "good" assets will be transferred to Bank of Cyprus, where depositors have been forced into accepting massive losses on uninsured deposits of more than 100,000 euros.

The process, known as a "bail-in" sees 37.5 percent of deposits exceeding 100,000 euros converted into equity in the bank, and an additional 22.5 percent used as a buffer which could also be converted into equity if circumstances warrant it.

In a deal brokered early on Tuesday morning, it was also agreed that a small portion of the remaining 40 percent in uninsured deposits effectively frozen under the arrangement, 10 percent, be unblocked.

The Greek Cypriot administration had unsuccessfully argued that the entire 40 percent be unblocked, a source familiar with the consultations said.

http://www.globalpost.com/dispatch/news/asianet/130406/greek-cyprus-finance-minister-quits-capital-controls-partly-eased