EU justifies control on capital movement in Cyprus

The European Commission Thursday supported the restrictions on the free movement of capital, including capital controls, imposed by Cyprus in order to prevent huge money outflow that could lead to the collapse of the financial system of Cyprus. "In current circumstances, the stability of financial markets and the banking system in Cyprus constitutes a matter of overriding public interest and public policy justifying the imposition of temporary restrictions on capital movements," said the EU's executive body in a statement. "Such restrictions may include bank holidays, limits on withdrawals, freezing of assets, prohibition of terminating fixed term deposits, prohibition on certain payment orders, restrictions in using credit/ debit/prepaid cards, restrictions on other banking operations as well as execution of certain transactions subject to the approval of the Central Bank and other measures," it noted. "While the imposed restrictive measures appear to be necessary in the current circumstances, the free movement of capital should be reinstated as soon as possible in the interests of the Cypriot economy and the European Union's single market as a whole," it added. The statement came as banks prepared to open in the Mediterranean island after being closed for nearly two weeks as negotiations on a bailout deal with the EU and the IMF continued. On Sunday, the EU and the IMF agreed to grant a 10 billion euro bailout to Cyprus to save the country from bankruptcy. Under the deal, Cyprus' second-largest bank, Laiki, will be shut down , while depositors having more than 100,000 euros on their accounts in the Central Bank of Cyprus face a big tax levy which could reach up to 40 percent. Under the banking restrictions in Cyprus, customers can only withdraw 300 euros per day and businesses can carry out transactions up to 5,000 euros per day, while travelers can take only 1,000 euros out of the country. However, analysts opine that putting restrictions on the free movement of capital is a serious violation of EU rules and principles.