Banks in Cyprus reopened today after a two-week closure following a crisis over an EU-IMF bailout. Strict controls on the level of withdrawals have prevented a bank run. But the restrictions are raising fresh doubts about the future of the euro.
This is the first time that capital controls have been imposed in the eurozone and some analysts say they violate the spirit of the monetary union. People are supposed to be able to use their euros in any of the 17 countries that adopted the single currency. But now that right is restricted in Cyprus.
Michael Arghyrou, a Greek Cypriot lecturer at Cardiff Business School, says the capital controls are an ominous sign.
“They will effectively be creating a situation whereby Cyprus will be a second-tier euro member and if this principle is applied anywhere else, this may well be the first step to the euro’s demise,” he says.
Slovenia, Malta and other small euro member states are reported to be feeling vulnerable.