Cyprus

27 January 2017

Cyprus has an area of 9,251 km² and a population of just over 1m, in comparison

Ireland has an area of 84,421 km²  and a population of over 6m.

Cyprus is effectively divided with the northern part under Turkish control since an invasion by Turkey in 1974. This is seen under international law as an illegal occupation of part of the EU accounting for 37% of its area.

Britain maintain bases in Cyprus amounting to 2.8% of its area and there is a UN buffer zone of 4%  of the total area.

Nicosia is the last divided capital in Europe.

Economic crisis

Like Ireland, Cyprus had an economic crisis in recent times.  It happened a little later than in Ireland, but like here it happened after a period of boom which involved reckless lending and spending.

Also, as in Ireland’s case, the EU and the IMF stepped in to save the day.  But their approach in Cyprus was different to their approach in Ireland or any other bailout to date.

In fact it was more of a bail-in than a bailout.

Having failed to see the writing on the wall during the good times Cyprus had no choice but to accept rescue terms that affected not only bank bondholders and shareholders – but many thousands of private deposit holders.

Their cash or savings were simply scalped and went to help fund the closure of one bank and the propping up of others.

The so-called "haircut" imposed in 2013 was designed to fall on those with large sums in offshore accounts, but resulted in many people with savings over 100,000 losing half their savings.

This did not sit well with a lot of people but especially those who had worked hard all their lives and were looking forward to a comfortable retirement only to find their nest egg now halved.

The bailout/bail-in process left a lot of anger and bitterness, with many older Cypriots blaming Germany or the EU for their plight but most eventually acknowledging that they took too much notice of populist politicians who failed to take hard decisions.

Here in Ireland we also saw a lot of anger with the government and the Troika following the introduction of austerity measures which eventually saw us through the recession and were not anything like as draconian as those imposed in Cyprus.

Distrust of and anger towards banks and financial institutions was and still is to some extent common to both countries.

Bank of Cyprus, the main bank involved in the crash and the bail-in has over the last 3 years made a comeback from being forced to seize cash from its savers to keep afloat to now forming plans to expand in the UK.  Although some 58% of its loans are still non-performing, customers are once again putting their money on deposit. 

At one stage John Hourican, the man charged with turning around the bank’s fortunes had his car burnt out, such was the anger of local people affected by the bail-in but recovery has been fast following the implementation of harsh measures, and many accepted the draconian measures as a necessary evil. For instance the structural changes starting with cuts to civil service jobs and salaries were seen by most as more palatable than budget-enhancing tax increases.

The future for Cyprus

1. Trust has recovered significantly and the Bank of Cyprus attracted fresh funds from high-profile investors such as Wilbur Ross (who also backed Trump in his election campaign).

BOCH, Bank of Cyprus Holdings has been set up as an Irish holding company to enable the Cypriot bank to meet the criteria to join the FTSE.  BOCH made a satisfactory debut on the London Stock Exchange main market a week ago trading about 800,000 shares on the first day.

The next step is to finish repaying the emergency funding.  Just €800m of emergency funding from the central bank still needs to be repaid, a small sum compared with the €11.4bn – equivalent to 70% of the country’s GDP – that was required to keep it afloat in 2013.

2.  As in Ireland, tourism is very important to Cyprus.

Cyprus welcomes about 3m tourists each year but mostly relies on sun, sea and sand which means a disproportionate number during the summer and resorts lying empty in winter.  To combat this there are efforts being made to promote Cypriot history, culture, art and sports such as golf and tennis.

Ireland has about 8m visitors per annum bringing in over €4.6bn. Like in Cyprus there are now initiatives to encourage activity holidays and cultural experience based activities which can be enjoyed all year round.  Ireland has lately been playing to its strengths and developing the tourism sector with both national and local initiatives to make the most of what we have and make up for the lack of sun.

3.   Ongoing reunification talks are giving rise to hopes of an economic boom although few believe the island’s EU-member southern republic will return to its pre-crisis affluence any time soon.

Recent talks between Greece, Turkey and the UK made a lot of progress on internal island issues such as property and relations with the EU but there is still a long way to go before the island can become the bizonal, bi-community, federal institution envisaged by the UN Secretary General, Antónío Guterres.

There is still fear and loathing, only now there is, among those who have suffered through the recession, a new spirit that sees hope in change and unity.

The fast approaching probability of reunification is giving economic and social hope and improving the ease with which business and trade is conducted.

This is in contrast to the situation in Ireland at the moment where businesses are fearing a hard Brexit will impact negatively on the ease with which business can be done with our nearest neighbour.

4.   There is also talk of a future bonanza from recent gas discoveries but harvesting these is reliant on relations continuing to improve with the Turks who patrol the waters around the North.


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