Cyprus scrambles for bailout, but Cypriots fear damage already done
Whatever the outcome of the crisis talks in Brussels, many Cypriots say that the prospect of bank accounts being raided had destroyed all confidence in the island’s lucrative banking industry.
Cyprus’s leaders engaged in frantic, 11th-hour talks to avoid a collapse of the Mediterranean island’s banking system yesterday, flying to Brussels to try to secure a crucial 10 billion euro ($13 billion) bailout from international lenders.Skip to next paragraph
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Nicos Anastasiades, the Cypriot president, and Michalis Sarris, his finance minister, flew to Brussels to try to hammer out a deal to contain the country’s chronic debt crisis.
It was a race against time – without a deal by the end of Monday, the European Central Bank (ECB) says it will cut off emergency funds to Cypriot banks, precipitating their collapse and potentially forcing the country out of the euro.
But back home, many Cypriots feared they were already staring into the face of economic ruin, regardless of the outcome of the talks with the rest of the euro zone. The island may be known for its golden beaches and cheap package holidays, but a dark cloud of despondency has settled over its one million inhabitants.
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Cypriots have been in shock ever since it was suggested last week that the government mount a one-off raid on bank accounts to help raise 5.8 billion euros ($7.5 billion) – a condition of receiving the 10 billion euro bailout from the European Union, ECB, and International Money Fund, the so-called “troika” of lenders. In the end Cypriot MPs voted down the idea of confiscating up to 9.9 percent of deposits over 100,000 euros ($130,000) and 6.75 per cent on accounts holding less than that amount.
But a different version of the idea was raised again over weekend, with suggestions that the Cypriot government would impose an unprecedented 20 percent levy on bank deposits of 100,000 euros or more held with the Bank of Cyprus, the island’s largest lender.
Whatever the outcome of the crisis talks in Brussels, many Cypriots said that the prospect of bank accounts being raided had destroyed all confidence in the island’s lucrative banking and financial services industry.
Companies with money already in Cypriot banks would withdraw the funds as soon as they could, while new investors would avoid the island like the plague.
“The troika has really shaken the system,” says professor Hari Tsoukas, an economist from the University of Cyprus. “I think the future could be terribly bleak. It’s going to have huge knock-on effects for the whole economy.”
Ioanna Constantinou, who works in the financial services industry in Nicosia, the capital, says: “Who is going to want to bring their money to Cyprus now? The banking sector is finished, we have lost all credibility.”
The European Union is supposed to guarantee bank deposits of up to 100,000 euros. Tearing up that accord has terrified Cypriots and has frightening implications for the rest of the EU.
“The only question now is, who’s next? Italy, Spain?” says Simos Angelides, a lawyer who once stood for election for the European Parliament but whose enthusiasm for the European project is now in tatters. “This is unprecedented. We are the guinea pigs – they are testing the model here before applying it to other countries. No one’s money is safe in Europe anymore.”