The capital controls in Cyprus were extended for a further seven days on Friday by the Central Bank of Cyprus (release). The spectre of capital controls hung over a press conference on Friday as nobody asked European Central Bank president Mario Draghi about the precedent that restrictions set. Jon Danielsson, director of the ESRC-funded Systemic Risk Centre at the London School of Economics, says that capital controls are rarely temporary:
Another European country was forced to implement “temporary” capital controls during its crisis – Iceland. Authorities said they would last a few weeks, or a month or two at worst. They were thought necessary because foreigners and wealthy Icelanders had lost faith in the economy and wanted to take their money out. While these people were considered misguided, their exit would have disastrous consequences. But five years on, controls are still in place and are getting more and more restrictive.
The debacle has dealt a blow to Eurozone investor confidence which fell from -10.6 to -17.3 in April, while a fall to only -13.1 was anticipated.