Capital Controls in Cyprus May Only Last a Few Days

BRUSSELS--The capital controls imposed by Cyprus must only be in place for "a few days," Europe's internal market and services commissioner said Monday, amid uncertainty over the island's financial future.

"Measures to restrict or limit free movement of capital can only be temporary," Michel Barnier said.

"We are now working with the Cypriot authorities...This is a limit on movement which may only last for a few days," he told reporters at a press conference at the European Commission in Brussels.

Cyprus has restricted the free flow of money to and from the island in recent days as it fought to overcome a financial panic that risked the country's exit from the euro zone, which would be the first member state to do so. Banks on the Mediterranean island have been shut all week and are due to reopen on Tuesday.

Late Friday, the Cypriot parliament approved capital controls and legislation to wind down banks in an effort to avert financial collapse, days after rejecting a European bailout plan that would have imposed a tax on all bank depositors.

Cyprus finally secured a bailout early Monday that lines up 10 billion euros ($13 billion) in financing for the government and shuts Cyprus's second-largest bank, Cyprus Popular Bank PCL (CPB.CP), imposing steep losses on deposits of more than EUR100,000, European officials said.

Officials said they believe the country will now need strict controls on money transfers in and out of the economy in the coming weeks or possibly months, cutting off its citizens and companies from much of the rest of the euro zone's financial system.

Mr. Barnier stressed that free movement of services and capital are a defining feature of the EU's free market, and that capital controls are only justified temporarily in Cyprus due to the "severity of the crisis".

"That may only be temporary, for a certain number of days," he said.

Mr. Barnier also said the characteristics of Cyprus's banking sector are unique and "exist nowhere else" in the EU, and that those with smaller savings in other euro-zone states shouldn't fear for the safety of their deposits.

"I'd like to state clearly that never, anywhere in Europe, is the protection of savers under EUR100,000 something that has to be called into question."

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