Is Cyprus On The Precipice Of Economic Disaster?
April 5, 2013 8:14 PM EST
The tiny Mediterranean island of Cyprus has been swept into the financial crisis that has ensnared the euro zone over the past five years. With a unique history and geographically far closer to the Middle East than Europe, Cyprus now finds itself on a precipice.
Having received a massive €10 billion ($12.3 billion) bailout from the European Union/International Monetary Fund/European Central Bank troika to avoid a financial collapse, the Nicosia government will likely impose harsh austerity measures, spending cuts and higher taxes – much like the beleaguered public in Greece, Italy, Spain, Ireland and Portugal have already endured.
Bank depositors who hold in excess of €100,000 ion the island’s two largest banks, will be forced to incur significant losses, sparking outrage.
Now, this small island of barely over 1-million people, hopelessly divided between the Greek south and a Turkish north, faces an unknown, perhaps, dark future.
And what is life like now for the people on the ground?
International Business Times spoke to a prominent Greek-Cypriot journalist to get her feelings on her country’s new crisis and gauge its mood.
Sarah Fenwick is the editor and co-founder of the Cyprus News Report, which is based in the city of Larnaca.
IB TIMES: Did the financial crisis and international bailout take you and other Cypriots by surprise -- or were you expecting the malaise in Greece to spread to your island?
FENWICK: It was expected, after all, Cyprus and Greece are intricately linked by history and common economic grounds. It took the previous government by surprise, however, and it took a long time for it to react, by which time the opportunity to take the initiative was gone and the ratings downgrades had started. I think the extent of the impact was underestimated all around.
IB TIMES: Taxes will rise and the government will surely impose austerity measures – do you expect to see a sudden reduction in your standard or living?
FENWICK: The [current] standard of living is good in Cyprus, and I expect to see a drop in the cost of living -- already the government is taking measures to reduce electricity and rent prices, for example.
I also expect that vulnerable groups -- pensioners, the unemployed and large families -- will see much more difficulties in maintaining a good standard of living. We will all have to be more resourceful and careful with what we have.
IB TIMES: Do you expect young Cypriots to leave the country en masse to look for work elsewhere? If so, where would they go? To Western Europe? UK? US?
FENWICK: Unemployment for Cypriot graduates is very high, so I would expect they will look for opportunities elsewhere in the EU, or the Middle East and even African countries.
There is already a big Diaspora of Cypriots in the US and the UK, so they could easily migrate for work through family connections.
IB TIMES: Unemployment in Cyprus is already at 15 percent -- is this a multi-year high? Or is this normal for the country?
FENWICK: This is an unprecedented level of unemployment, the only other time this was seen was after the Turkish invasion in 1974, when the country's infrastructure collapsed.
IB TIMES: Do Cypriot people have a lot of anger and cynicism towards their politicians, like they do in Greece (even before the current crisis)?
FENWICK: I wouldn't say there is outright anger, but there is a high level of frustration, confusion and insecurity for the future. There are groups who do have anger, however, savers and investors who had large deposits in the affected banks, Bank of Cyprus and Popular Bank. There is plenty of litigation going on.
On the other hand, in general, there is a strong loyalty and patriotism towards the government, and this is balancing out the negative feelings.
If the government's investigation into who is responsible for the crisis has integrity and those responsible are held to account, it could go a long way towards restoring confidence.
IB TIMES: Could this financial crisis serve to somehow reunite the Greek part of Cyprus with the Turkish north?
FENWICK: There is no link between these issues. The case has been made many times that a reunification and peace agreement would benefit both communities economically, but this has not resulted in a deal in the past.
As long as there is an armed Turkish occupation [in the north], the motivation towards reaching a compromise and making a lasting peace will be missing.
IB TIMES: Many Russians have kept their money in Cyprus banks - apparently some of these funds were from ill-gotten sources. What is the average Cypriot’s view of the Russians?
FENWICK: The Cypriot and Russian communities are fond of each other and united by common Orthodox religious views, as well as political and financial alliances throughout the centuries. This view supersedes the rumors and speculation spread by various media outlets about money-laundering - which has still to be proved, by the way.
Moneyval [a Council of Europe committee which assesses its members’ compliance with international standards related to legal, financial and law enforcement issues] is conducting its own investigation into alleged money-laundering activities now, so I reserve judgment until there is clear and concrete proof.
IB TIMES: How is Cyprus’ property market doing? Did it avoid the crash witnessed across much of Europe?
FENWICK: Property prices are expected to drop further, they have been steadily declining over the last two years or so. It remains to be seen whether they will crash.
IB TIMES: Does Cyprus still rely heavily on tourism, or has it developed other industries?
FENWICK: It relies heavily on tourism, but has developed other industries, like professional services and financial services.
The import/export, transport and shipping industries have a developed infrastructure as well.
IB TIMES: How do you and your friends expect your lives to change in the near-term?
FENWICK: We'll cut costs, and trim our budgets, and be more careful of our spending. But I take the view that no matter what state the economy is in, there will be opportunities to do business. We'll just need to get more creative and resourceful.
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