Government advisers urge eventual withdrawal from eurozone

Michael Sarris, the Cypriot finance minister, sought to muffle calls for the country to weigh a precedent-setting exit from the euro to ease the economic pain inflicted by its €10bn bailout.

The option of eventually pulling out of the currency was floated by a Nobel prize winner now advising the government, Christopher Pissarides, and Nicholas Papadopoulos, head of the parliament’s finance committee.

“It would be catastrophic to even talk or entertain the idea and much less exit the eurozone,” Sarris said yesterday.

“Our place is in Europe, our place is in the eurozone, and we will do whatever it takes to stay there.”

Restrictions on money transfers probably will not be loosened for weeks as the island digests the impact of the European decision to close the second-largest Cypriot bank and impose losses on uninsured depositors, he said.

Cypriot banks have been closed except for limited ATM withdrawals since an initial, later revised, rescue accord was reached on Mar 16. The government extended the bank holiday until tomorrow.

Controls on capital movements to prevent money from draining out of the banking system — allowed in exceptional circumstances under EU law — will remain for “a matter of weeks”, Sarris said.

Sarris said restrictions may be “less stringent” on banks other than Bank of Cyprus, the largest bank, which will take over viable assets left over from the shutdown of Cyprus Popular Bank, the second-largest.

“We are having deliberations together with bankers and our partners to see what is the right balance between controls that will not cripple the economy, that will allow the economy to function,” Sarris said.

— Bloomberg