The EU Provision which will allow capital controls in Cyprus is Article 65(b)

As I indicated three months ago, the IMF now supports capital controls in specific and extraordinary circumstances, particularly in view of its experience in Iceland. The pre-condition is that the controls be "targeted, transparent, and generally temporary". This is now relevant given the situation in Cyprus. Matina Stevis and Michalis Persianis of Dow Jones have learned that EU and ECB officials are now working on a contingency plan for Cyprus which includes capital controls. Likely, they would go into place as soon as Cypriot banks re-open for business.
Here is what Dow Jones has to say about the controls specifically - note the part about a "bad bank":

After Tuesday's no vote, the ECB issued a statement reaffirming its commitment to provide liquidity to banks "as needed within the...


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