The two biggest banks in Cyprus remained closed on Tuesday despite other island banks reopening following a €10-billion deal to stave off financial collapse.
The deal came as Cyprus’s tourism season is poised to begin, with more than 200,000 UK visitors expected in the next three months.
Cyprus’s banks have been closed for a week and a half. The biggest of them, Bank of Cyprus, is now due to re-open on Thursday. But the second largest, Laiki Bank, will be wound up.
The bail-out is expected to end the immediate crisis and keep Cyprus in the eurozone.
The Cyprus finance minister had said a disorderly exit would be “disastrous”.
However, analysts warned Cyprus faces a deep recession, with its economy expected to shrink sharply.
One estimate put the likely contraction at 20% as the island’s main industry – offshore banking – shuts down.
The chair of the Cyprus parliament’s finance committee warned: “We are heading for a deep recession [and] high unemployment.”
European Union commissioner for economic affairs Olli Rehn said: “The near future will be difficult for the country and its people.”
The deal saw the ‘troika’ of EU, European Central bank and International Monetary Fund (IMF) agree to make €10 billion available to Cyprus’s banks in return for Laiki Bank being wound up.
Deposits under 100,000 will be transferred to the Bank of Cyprus and an unspecified amount of larger deposits seized after an earlier deal – which would have spread the pain to smaller savers – was rejected by the Cyprus parliament.
The deal will fall heavily on Russian investors who hold about one-third of deposits in the country. The Russian Prime minister, Dmitry Medvedev referred to it as “stealing”.
The Russian and German tourism markets to Cyprus are expected to be severely hit by the crisis
However, industry figures have expressed confidence the UK market to the island will not be adversely affected.
Sunvil managing director Noel Josephides said last week: “I don’t see a problem for the UK market.”
Yet there are concerns the crisis will have a knock-on effect on the wider eurozone and therefore on the UK economy, providing a fresh dampener on demand.