A couple of years ago, Cyprus was briefly the focus of some serious international market stress. The banks went belly-up, cash flow cut short, and the Eurozone wobbled on its foundations. Investors drew in their horns and pulled back their funds while Cyprus and Europe fought to stabilize the situation. The international attention did not last long, however. A “bail-in” and burgeoning crises elsewhere saw the world’s gaze drift away, leaving Cyprus to pick up the pieces of her shattered economy more or less alone. However, while the world may have forgotten, Cyprus has not. How could it, when the evidence of what happened is everywhere? Many Cypriots are still wrestling with the personal fallout from the financial crisis, even three years on. However, some say that the economy is burgeoning, and Cyprus will soon see a wonderful resurgence. Could this be true?
Financial Fallout
From shuttered shop fronts to personal struggles with creditors, it’s hard to brush the fallout from Cyprus’s financial crisis under the carpet. Unlike many financial crises, ordinary Cypriots felt the impact of Cyprus’s economic collapse immediately – and it hit hard. During the “bail-in”, a huge amount of personal money was lost as funds were seized to save the banks. Savings, investments, wages – anything people had stored in the banks – vanished in the blink of an eye. Quite naturally, this left a lot of people in a seriously unstable position. Businesses went under. Home sales fell through. The “bail-in” was controversial (and probably wouldn’t happen again under new European rulings) – but it happened nonetheless. And lots of Cypriots remain pretty angry about it. Why, after all, should they pay for the greed and foolishness of irresponsible lenders? Why could Cyprus not have done what Iceland did, and put its bankers in jail? Interestingly, however, while the use of personal funds has had an undoubted personal and political fallout, it seems that some of the more dubious methods of damage control used by Cyprus have reaped positive rewards.
Closing Financial Borders
Perhaps surprisingly, ‘capital controls’ imposed by Eurozone crisis management teams on Cyprus caused more outcry in the markets than the usurpation of the personal funds of Cypriots. These ‘capital controls’ aimed to prevent people from taking their money out of the country – something prominent investors and more money-motivated governments claimed would disrupt the free exchange of funds and put a spanner in the works of the global market. In fact, however, the capital controls appear to have effectively prevented money from draining out of Cyprus with little real effect upon the global economy as a whole. Problematically, however, nobody was entirely sure that this would be the case – leaving Cypriots feeling as though they’ve been subject to a financial experiment by the larger Eurozone countries. Would Brussels have cared if the capital controls had gone disastrously wrong and Cyprus had suffered even more as a consequence? Or would it simply have observed the fallout with interest? Whatever the truth of the case, many Cypriots tend towards the latter view.
Slow Recovery
In the wake of the crisis, unemployment was high, and many struggled with debts incurred as a result of the “bail-in”. Now, it seems that things are picking up. Unemployment is dropping, businesses are beginning to retrench some of the damage done, and the markets are starting to recover. The situation is still, however, rather bleak. Even though it is falling, unemployment still remains a serious problem. The Cypriot economy is performing poorly when compared to other Eurozone economies. And people can’t pay their debts – which makes for a bit of a sticky situation for the banks and other lenders. Things are improving – but improvement is slow, and it’s dragging a lot of anger and resentment in its wake. With the UK having voted (controversially) for ‘Brexit’, an undercurrent of Cypriot rage at Europe’s handling of its crisis could swell into calls for Cyprus, too, to leave the Eurozone. In this, it would not be alone. The future of Europe is uncertain – and Europe’s poor handling of the Cyprus crisis has, sadly, not made it any friends on this island. The world may have forgotten what happened in Cyprus, but Cyprus has certainly not forgotten. Nor is it likely to for many years to come.
By: Missi Davis
