Cyprus, the island that has forgotten how to laugh

Last week the sun shone over Nicosia, whose old town is a tangled warren of
narrow lanes, Byzantine churches and colonial bungalows with wooden

But dark economic clouds are looming over Cyprus in the wake of the bail-out
struck with Brussels, in which the country’s two biggest banks are to be
restructured and depositors hit with a “levy” of up to 80 per cent
of their savings above €100,000.

In a move that was seen to have crossed the Rubicon regarding the guarantee of
savings within the eurozone, customers have had their accounts frozen;
exactly when their money will be confiscated in the “haircut”, as
it is euphemistically known, is expected to be announced this week.

Students protest against austerity measures in front of Cypriot
Parliament (Getty Images)

So far there has been none of the violence that has hit neighbouring Greece,
where masked protesters hurling stones have frequently clashed with riot
police shooting tear gas in cities like Athens and Thessaloniki.

Conventional wisdom has it that Cypriots are more restrained than their Greek
cousins – calmer and more “British” in fact, reflecting
their 80-year history as one of the strategic lynchpins of the Empire,
before they gained independence in 1960.

But there are fears that all that could change and that some Cypriots could
suddenly snap when they realise just how grim their future looks, as the
financial and banking sector withers, the economy contracts by up to a
quarter and unemployment soars to 25 per cent.

“I wouldn’t be surprised if someone took a gun and went after whoever is
responsible for all this,” said Marios Georgiou, a 45-year-old civil
servant who stands to lose 40 to 50 per cent of his savings, held in the two
banks targeted in the bail-out, Laiki and Bank of Cyprus.

“I ask you, is this fair? Is this legal? It cannot be. People can’t
believe it. We have been in a struggle with the Turks for 40 years, but it
took the EU just one day to come here and take all our money.”

Sipping a coffee at a bar between tourist boutiques selling postcards and
sunglasses, Kyriacos Loizides, 53, a businessman, said: “Next week
there will be huge demonstrations. I think there will be violence and
killings. People will take revenge against the people who created this
scandal, this tragedy.

“Cyprus will become like Greece, where people throw yoghurt and tomatoes
at politicians whenever they see them. We feel that soon everybody will be
beggars here.”

The stories of financial ruin have been trickling out all week – the elderly
man who emigrated to Australia, worked hard for 35 years and now faces
losing almost all of the €800,000 nest-egg he deposited in a Cypriot bank on
his return; the wholesaler who was unable to pay the €1 million needed for a
huge consignment of seafood fish that arrived in the port of Limassol, and
which ended up rotting on the dockside.

People gather in front of Laiki Bank as the country’s banks re-open this
week (Getty Images)

A drastic reform of the banking system was the condition imposed by the troika
of international lenders – the European Bank, the European Commission and
the IMF – in exchange for granting Cyprus €10 billion in emergency funding.

The deal, hammered out during marathon talks with Nicos Anastasiades, the
newly-elected president of Cyprus, averted the risk of the country going
bankrupt and crashing out of the euro.

But Cypriots feel it was a betrayal by their EU partners and reserve
particular opprobrium for Germany’s Chancellor, Angela Merkel, and its
finance minister, Wolfgang Schauble.

Berlin is being widely blamed for wanting to impose its standards of fiscal
austerity and probity on Cyprus and of trialling a debt reduction model that
could be applied to other struggling countries along the Mediterranean

One Cypriot newspaper said the troika had “pillaged our economy and
desecrated our sovereignty”, while another railed against “the EU

“Mrs Merkel and Dr Schauble decreed that the Cyprus economic model was
not acceptable,” Jim Leontiades, an analyst, wrote in the Financial
, a Cypriot newspaper. “No other eurozone country has been
required to remodel itself and destroy its main industry.”

Germany, for its part, was reluctant to spend taxpayers’ money on bailing out
the large number of Russians who had money in Cyprus’s banks, some of it
from shady provenance.

But the introduction of the capital controls was unprecedented in the 14-year
history of the euro, with analysts saying that it was the sort of thing that
usually happened in Africa or Latin America.

“It’s criminal, what they have done,” said Carmen, 34, a Romanian
businesswoman who has lived in Cyprus for two years.

“Never have I heard of a country robbing its citizens’ bank accounts like
this. There will be trouble for the government over this. If you live by
fire, you die by fire.”

Facing a drastic contraction of the economy, many Cypriots say their only hope
now is the development of huge reserves of natural gas which were found
beneath the seabed of the island’s exclusive economic zone, two years ago.

In the bars and coffee shops of Nicosia, where locals puff on hookah pipes
packed with fragrant tobacco, there is constant talk that the billions of
euros to be earned from the gas could be the salvation of Cyprus.

But exploration is still at an early stage and the gas may not come on tap
until 2018 or 2019. And exploiting it will only exacerbate Cyprus’s already
tense relations with Turkey and the northern, Turkish-occupied portion of
this divided island.

Cyprus has been split since Turkey invaded the north in 1974, after an
attempted coup in the Greek part of the island raised fears in Ankara that
the island was about to unify with Greece.

Hopes of a breakthrough in peace talks in 2004 were dashed after Greek
Cypriots rejected a peace plan brokered by then-UN Secretary General Kofi

Turkey is deeply unhappy about the prospect of Cyprus exploiting the gas
without its consent, saying that the resources also belong to Turkish
Cypriots. It also lays claim to parts of Cyprus’s EEZ.

“It is not acceptable that the Greek Cypriot side uses the economic
crisis it is facing as an opportunity to create a new fait accompli,
the Turkish foreign ministry said in a recent statement.

The only acceptable way to exploit the reserves was with “the clear
consent of the Turkish Cypriot side regarding the sharing of these natural

In Nicosia, there are daily reminders of the tensions with the Turks. The
UN-administered “Green Line” splits the city in two, making it the
last divided capital in the world.

The sound of the muezzin call to prayer can easily be heard in the Greek half
of the city, mosques and minarets loom just across the rooftops and a giant
Turkish Cypriot flag has been etched in red and white into a nearby mountain

Wander through the Greek Cypriot part of the old town in any direction and
within 10 minutes your path will be blocked by sand bags, razor wire and
barricades made of oil drums filled with concrete.

Bored soldiers with automatic rifles man squat military bunkers. Painted in
the blue and white of the Greek flag, they look out onto a scruffy no man’s
land towards the other side of the Green Line, where the flags of Turkey and
the self-declared Turkish Republic of Northern Cyprus flutter in the wind.

In the dead ground in between there are shattered houses and shops, their
walls pockmarked with bullet holes, their wooden shutters fading in the sun.
Here, time has stood still since 1974.

Some Cypriots see the crippling bail-out deal as a deliberate attempt by the
EU to weaken them and drive them to the negotiating table with the
Turkish-occupied part of the island, to try to solve the 40-year dispute
once and for all.

“There are ulterior motives at work here – other countries want to get
their hands on our oil and gas,” said Miltos, a 34-year old businessman
who was waiting anxiously for the island’s banks to open on Thursday after
being shut for 10 days to avoid a massive exodus of funds.

“We have a loan we can’t repay. We are going deeper and deeper into the
hole. So we’ll have to sell our only remaining asset – the oil and gas.

“Cyprus is small, the EU can use us as a guinea pig. They can rape our
resources and force us to accept any plan for reunification.”

Cypriots admit that they are partly to blame for the mess they find themselves
in. The country put too much reliance on its burgeoning financial services
sector and its banks were heavily exposed to debt in Greece.

Islanders have been living beyond their means for years, said Mr Loizides, the
businessman in Nicosia. “But a lot of it was the banks’ fault. A bank
called me a while back and said they could offer me a €6,000 overdraft and
€5,000 on my credit card. I hadn’t even asked for it.”

As Mrs Charilaou contemplated a tough time for her electronics shop, she
learnt that a pharmacy just round the corner is to close this weekend.

“They had been in business for 50 years,” she said. “A friend
of mine who worked there for 35 years is in tears. We are a laughing people
but I’m afraid that we are going to forget how to laugh.”

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