Cypriots are bracing for a transformed country in the wake of a bailout deal that could cause the economy to shrink as much as 10 percent. Already, banks are limiting cash withdrawals.
A mixture of anger and weary resignation swept over Cyprus on Monday in the wake of a eurozone bailout deal that could shrink the island nation’s economy by 10 percent and cause a sharp spike in unemployment.
Many Cypriots were in shock, saying that the drastic terms that their leaders had to agree to in return for a vital 10 billion euro bailout could plunge the country into a deep recession from which it would take years to recover. They fear that the impact of bank restructuring and forced levies on accounts will be as bad, if not worse, as the effects of the Turkish invasion of the island in 1974.
Until now the invasion, which resulted in the island being split in two, was regarded as Cypriots' most traumatic experience since independence from Britain in 1960.
The bailout deal, negotiated between Cypriot politicians and international lenders in Brussels, will effectively dissolve one of the country’s biggest banks, the troubled Laiki Bank.
Another large lender, the Bank of Cyprus, will also be hard hit – businesses and individuals with deposits of more than 100,000 euros are to be targeted by a one-time levy that could confiscate up to 40 percent of their savings.
The sense of apprehension intensified on Monday when the two banks imposed even more drastic limits on how much money people could withdraw from their accounts at a time, slashing it from an already paltry 260 euros to only 100 euros.
Since the cash controls were introduced last week, Cypriots have been lining up to withdraw money, concerned that they will not be able to pay for food, gas, household bills, and other basic goods and services, and that the bank's funds might dry up altogether.
Standing in front of a Laiki Bank cash dispensing machine in Nicosia’s historic old town, Andreas Christou was one of hundreds of people who expressed indignation at not being able to access his money.
The businessman accuses the “troika” that enforced the deal – the European Union, European Central Bank, and International Money Fund – of acting “like the Mafia.”
“If Europe wanted to help, they should have imposed restrictions gradually, not by grabbing us by the throat. People are very angry and very disappointed. We don’t want to be a member of Europe if this is what it means,” he says.
With the banking and financial services sector left severely battered, Cyprus has precious little left to fall back on. It has little manufacturing industry and its spectacular beaches and archaeological ruins only lure tourists in the summer.
“We produce a bit of olive oil and some grapes and that’s about it,” says Christos Vourkos, who runs a fruit and vegetable store close to the Cypriot parliament building, outside Nicosia’s centuries-old Venetian-built walls.
“The future is going to be very difficult, and standards of living will go down, without doubt.”
In the tangle of alleyways and streets that make up old Nicosia, Mohamed Hussein, a Syrian immigrant, was serving kebabs and plates of hummus in the Golden Beirut, a restaurant inside a magnificent Ottoman-era town house.
He was even more pessimistic.
“The Cypriot economy is finished. The banks have been hit hard," he says. "The problem is we have no industry. We have tourism, but that lasts six months a year, at best.”
Cyprus’s leader conceded that the deal, which involved days of back and forth haggling with international lenders, would bring tough consequences.
"This decision is painful for the Cypriot people. This decision was a defeat of solidarity, of social cohesion, which are fundamental freedoms, fundamental principles of the European Union," the president of parliament, Yiannakis Omirou, told the Associated Press.
Cypriots admitted that their country had made significant financial errors – for instance, by buying a substantial amount of neighboring Greece's debt – but accused the troika of badly mismanaging the situation. They feel that the institutions have unfairly made an example of Cyprus because it is weak and easily bullied. Cyprus has an economy that makes up less than 0.2 percent of the eurozone's trillion-euro economy.
The island’s many foreign residents, including tens of thousands of Russian investors, British retirees, and a sprinkling of North Americans, agreed.
“It will be very hard to restore confidence. It will take a long time for the bitter taste to go away,” says Graham Colville, a Canadian former journalist who has lived in Cyprus for 13 years.