Cypriots Mourn Collapse of Livelihoods as Banks Crash

Cypriots are now looking ahead to a less distinguished period of their intertwined history

By Tom Stoukas

For Cypriots trying to make sense of the past 10 days, the worst is yet to come.

While they may be staying in the euro for now, people on the island are lamenting the demise of an economy built on the banks that ended up sinking it. Cyprus sealed an agreement with creditors overnight that will shut one of its largest lenders in return for 10 billion euros ($13 billion) of aid.

“The problem is not solved and some bad things are going to happen in the next six months,” said Maria Philippou, 45, a civil servant in Nicosia and a mother of three. “The leaders are to blame in Cyprus and the European Union. They let the bankers do whatever they wanted.”

Cyprus is the fifth country to tap international aid since the European debt crisis erupted in Greece in 2009. The accord, revised after a March 16 deal was rejected in the Cypriot Parliament because of a tax on smaller depositors, exempts bank accounts below the insured limit of 100,000 euros. It doesn’t spare people’s livelihoods, locals said.

“We will have even more people unemployed,” said Epifanos Epifaniou, 50, who used to drive a delivery truck in Nicosia and has been jobless for six months. “It’s a huge problem. Nobody knows where we are heading.”

Cypriot President Nicos Anastasiades agreed to shut Cyprus Popular Bank Pcl, the second biggest, under pressure from his euro partners and the International Monetary Fund as negotiations stretched into the night.

Protesting

Hundreds of protesters massed outside the floodlit presidential palace in Nicosia late yesterday, shouting for the bailout “troika” of the EU, European Central Bank and IMF to leave Cyprus, a country of 862,000 people.

The streets in Nicosia were quieter today because of a national holiday to celebrate Greek independence, with school children parading to the Greek embassy. Lines remained at Popular Bank’s cash machines after the daily limit was lowered to 100 euros yesterday from 260 euros.

Anastasiades was running out of options after failing to get help from the Russians, whose holdings in Cypriot banks Moody’s Investors Service estimated at $31 billion.

The deal imposes losses that two EU officials said would be no more than 40 percent on uninsured depositors at Bank of Cyprus Plc, the largest bank, which will take over the viable assets of Cyprus Popular Bank (CPB) as it’s wound down.

Destruction

“I’m not happy with the agreement because it will be a destroyer for the Cyprus economy,” said Yannis Emmanouilidis, 50, a chemist. “Because if our bank system is destroyed, the whole economy will be destroyed.”

Bank assets in Cyprus swelled to 126.4 billion euros at the end of January, seven times the size of the 18 billion-euro economy, from 78 billion euros in 2007, data from the ECB and the EU’s statistics office show.

Emmanouilidis said he has an account at Popular Bank, or Laiki in Greek, and is thinking about withdrawing his money, though he doesn’t want to exacerbate the economic problems.

If he does, he will have to wait. Banks in Cyprus, which have been shut for the past week, remain closed and lawmakers voted last week to impose capital controls to prevent a run on deposits when they reopen.

“Maybe we won’t have the right to take out our money,” Emmanouilidis said. “This is a free market and the banks won’t let us take our money out? This is amazing in a democracy of the European Union.”

Moscow Mission

A Cypriot mission to Moscow last week failed to yield an alternative to the European-sponsored bailout.

Before the change of government in Cyprus last month, Germany was insisting Russia contribute to any international bailout because it argued that Russian capital dominates the banking system. It alleged some of that money was illegal, while Cyprus refuted accusations of money laundering.

A poll this month by Prime Consulting for Sigmalive TV found 67.3 percent of Cypriots said the country should leave the euro and tighten relations with Russia. The survey of 686 people on March 19-20 found 91 percent of respondents supported the parliament’s decision to reject the initial bailout deal with the proposed losses for depositors.

“Our lives are going to be terrible,” said Philippou, the civil servant in the Cypriot capital. “My husband works at a computer company that does business with the financial sector so I’m worried what will happen to him.”

The Cypriot economy contracted 3.4 percent in the fourth quarter of 2012 from a year earlier. The budget for this year had projected it will shrink 3.5 percent this year.

Philippou was watching her children in a parade to the Greek embassy in Nicosia to mark today’s annual celebration of Greece’s fight for independence from Ottoman rule almost two centuries ago. Cypriots are now looking ahead to a less distinguished period of their intertwined history.

“I think things here will be worse than Greece eventually,” said Philippou “I worry about my children. I don’t know if they will be able to have a life like mine.”