Ammon News - LARNACA, Cyprus (Reuters) - Within one week in June, Cypriot Andrew Georgiou suffered a massive heart attack and his father was diagnosed with leukemia, just as they were fighting to recover much of their life savings.

A victim of Cyprus’ chaotic financial rescue, Georgiou cannot be sure his stressful legal battle for the lost money wrecked his family’s health. But, as he said with grim understatement, “it sure as hell didn’t help.”

Georgiou is one of an estimated 20,000 account holders who had large amounts of savings wiped out almost overnight at Laiki, the island’s second-largest bank, which was wound down under the 10 billion euro ($13 billion) international aid package.

“My initial reaction was utter disbelief. Now I am just angry,” Georgiou, 56, told Reuters. He has spent the best part of the past four months arguing with his bank manager and in lawyers’ offices, trying to reclaim funds his father and three sisters had in the now-defunct bank.

The Georgiou family’s case is one of hundreds of actions against commercial lenders, the central bank and the government that are pending in the courts. If successful, they could unravel the “bail-in” which saved Cyprus from bankruptcy in March but, unlike the bailouts of other troubled European Union countries, targeted savings in two major banks.

Tiny Cyprus became the testing ground for EU leaders who realized their electorates would no longer accept using any more taxpayers’ money to save banks from collapse.

Whereas a long line of EU banks were rescued at huge public expense during the 2008-09 financial crisis, this time the EU excluded Laiki and its peer, Bank of Cyprus, from any aid.

Instead, their clients paid. About 4.3 billion euros in deposits belonging to 14,000 entities were affected by the winding-down of Laiki.

This left savers with at most 100,000 euros, the ceiling on deposit insurance under EU regulations.

Altogether the Georgiou family had 750,000 euros in Laiki. Some of this is covered by the insurance but exactly how much remains unclear due to confusion over entitlements on the several joint accounts they held. Bank officials have revised the size of their estimated losses several times, adding to the anxiety.

Unlike Laiki, Bank of Cyprus is being saved but the authorities slapped a 47.5 percent loss on deposits exceeding the 100,000 euro limit to help recapitalize it, exchanging the seized funds for shares in the lender.

Both banks had gambled on high-yielding Greek government bonds which blasted holes in their balance sheets when the country’s debt was restructured under another EU/IMF rescue. The Cyprus government would have gone bankrupt had it tried to rescue the banks itself.

Lawyers for the plaintiffs, who range from Russians who wrongly thought their savings were in a safe place to ordinary Cypriots like the Georgious, say they have a strong case.

“There are very solid grounds to believe their action will succeed,” said Costas Velaris, a Nicosia lawyer.

“Now whether the defendant – the bank concerned, the Central Bank and the government of Cyprus – will have the money to compensate the successful applicant is another matter,” said Velaris, one of a team advising depositors.

Neither the attorney general’s office nor the central bank, which took over responsibility for the two banks, responded immediately to requests for comment. However, central bank officials have stressed they had to make very difficult decisions after the European Central Bank said it would halt emergency funding for the two lenders, unless Cyprus agreed to the terms of the EU and International Monetary Fund’s rescue.

Under this deal, Cyprus approved a “bank resolution framework” which split Laiki into a “good” and a “bad” bank. The good assets, including the insured deposits under 100,000 euros, were transferred to Bank of Cyprus.

Velaris said the legal action will not stop in Cyprus, but extend to the European Court of Justice and further afield if necessary. Action would be taken against European institutions, officials and “whomever we can lay a hand on,” he said.

He argues that a law under which deposits were effectively seized on March 22, a “resolution law” which put Laiki and Bank of Cyprus under central bank control, is fundamentally flawed.

“It simply cannot operate independently of the legal systems of the countries which comprise the European Union,” he said. “You cannot say you do not respect the right to property.”

Velaris dismisses a suggestion that without seizing deposits Cyprus could have suffered a disorderly default on its debts. “There are other options,” he said.

Depositors say these could have involved international lenders contributing to the cost of a bank bailout, as was the case in other countries such as Greece, Ireland and Spain.

“It was not the first bank in the EU which was insolvent,” said Adonis Papaconstantinou, head of an association representing more than 1,600 Laiki depositors including those in Britain, Russia and India.

“What they did is kill the entire economy ... it’s like they told people ‘Now it’s time for you to die.’ Who is playing God here, and why am I being victimized?” Papaconstantinou said.

Under the weight of austerity, Cyprus faces a bleak immediate future. Its international lenders forecast the economy will contract 8.7 percent this year and 3.9 percent in 2014.

Georgiou is among a legion of British-born Cypriots who dreamed of swapping the grey skies of Southgate in London for their sun-drenched homeland. He moved with his father Constantinos, who had emigrated to postwar Britain in search of a better life, to Cyprus in 2012, bringing all their savings with them. They wanted a new start after Constantinos’ wife and Andrew’s mother, Calliope, died.

When Constantinos heard rumors Laiki was in trouble, he was persuaded by his bank manager not to move the savings as it was state-owned. Two weeks later, Laiki went under.

Georgiou, who had previously enjoyed largely good health, barely survived the heart attack on June 15 while his father is now undergoing chemotherapy for the leukemia.

“It’s been incredibly stressful,” said Georgiou. Asked if he thought the health problems were in any way connected with his financial predicament, he said: “There is no guarantee that was it, but it sure as hell didn’t help.”

Yet even though they paid to avert a financial meltdown on the Mediterranean island, he says they will get little from the state in return. Georgiou’s medicine bill alone is 300 euros a month, unavailable on the state which lacks a comprehensive public health care system. “We’ve been shafted, pure and simple,” he said.