Home \ Personal

Cyprus resilient after shockfinancial crisis

Cyprus gained independence from the UK in 1960, became a member of the EU in

2004, replaced the Cypriot pound with the euro in 2008 and was listed by the IMF

(International Monetary Fund) as one of the 31 advanced economies in the world in

June 07th, 2016 Author: Natasha Wood RSS-Feed

ANALYSISNEWSLETTERSubscribe Now

Related Articles

Popular Articles

Bikini Billionaire is but One VietnameseSuccess Story

Microsoft ‘Links In’ for 26.2 BillionDollars

Men: Investing in a Summer Hat

Orlando Tips for UK Tourists

Lily the International Fashionista'sDiary! #1 - Where it All Began

Close ×We use cookies to ensure that we give you the best experience on our website.If you continue without changing your settings, we'll assume that you are happy to receive all cookies fromthis website.

Sign Up Log In GET QUOTE PERSONAL BUSINESS TOOLS SUPPORT

Convert webpages to pdf online with PDFmyURL

2011.

But shockingly the financial system imploded in the spring of 2013.

What happened?

Greek Independence Day is a national bank holiday in Greece and Cyprus and has

blended over time with the religious Feast of the Annunciation – when the Angel

Gabriel informed the Virgin Mary that she would give birth to baby Jesus. This festival

takes place on March 25th each year.

In 2013 however the celebrations fell flat for many as the 10-billion-euro bailout

between the European Commission (EC), the European Central Bank (ECB) and the

IMF – collectively known as the Troika - was announced in the early hours. This made

Cyprus the 5th EU member state to request such financial assistance.

This package was agreed in return for a commitment to shut down the Laiki Bank,

Cyprus’ 2nd largest, and it also imposed a bail-in of large uninsured bank deposits –

the first arrangement worldwide to include such a previously inconceivable condition.

This controversial ruling meant that a levy of 47.5% was imposed on customers with

more than €100,000 deposited in Bank of Cyprus, the island’s largest commercial

bank by market share. With the closure of Laiki Bank (Cyprus Popular Bank) only

those with deposits less than €100,000 were compensated by having the contents of

their accounts moved to Bank of Cyprus.

Bikini Billionaire is but OneVietnamese Success Story

Microsoft ‘Links In’ for 26.2 BillionDollars

For more information click here.

Convert webpages to pdf online with PDFmyURL

their accounts moved to Bank of Cyprus.

Those with €100,000 (£85,000) or less were therefore unaffected but the rest,

including many Russians who as a nation were estimated to have held more than

29% of the 68 billion euros deposited in Cypriot banks, lost billions.

Panic ensued with a 100-euro limit on ATM withdrawals and the entire banking sector

shut down for 2 weeks. After the closure new limits were laid down: €300 a day cap

on cash withdrawals for individuals; central bank approval was required for business

transactions over €5,000; credit card spending abroad was restricted to €5,000 per

month; and you could not export more than €1,000 at a time when travelling

overseas.

You would think these extremely harsh measures that were put in place to prevent

Cyprus from being forced out of the single currency would cause uproar among the

masses but, whilst people were (and still are) justifiably angry, the Cypriots

demonstrated quiet resilience and minimal fuss.

The Bank of Cyprus inherited the 9.2-billion-euro debt which Laiki had with the ECB

for emergency liquidity assistance, so the money withheld by the banks was used as

equity for recapitalisation.

In some small show of appeasement, the Cypriot Government revised their

‘citizenship by investment’ programme which had previously required an investment

of 10 million euros by foreigners wishing to apply for Cypriot citizenship. This amount

Convert webpages to pdf online with PDFmyURL

was reduced to €3 million for non-residents who had money deposited in the banks

before 15th March and subsequently lost at least €3 million under the terms of the

bailout.

Keeping it simple, why did the crisis occur?

There appear to be several contributing factors, in no particular order:

Greece: Laiki Bank and Bank of Cyprus had major operations in Greece and were

considerably exposed to both Greek government bonds and non-performing Greek

private sector loans which were impaired and had to be written-down. In 2011 Laiki

Bank lost roughly €2.4 billion on these assets and Bank of Cyprus €1.8 billion, a huge

portion of the overall substantial total loss for Cyprus of approximately €4.5 billion.

This was the highest impact for any country within the Eurozone.

Global Economy: The Cypriot economy entered a mild recession in 2009 when falls in

tourism and shipping led to rising unemployment. Economic growth was also affected

when the real estate and construction markets suffered a blow during 2010–2012;

property values decreased by around 30% and there was also a reduction in overseas

buyers.

Communist President: Cyprus joined the EU in 2004 and the euro in 2008, not

necessarily for economic reasons but because Cyprus felt it could benefit from the

political protection having been easy prey for historical powers. Two months later

communist president Demetris Christofias was elected – again not for economicConvert webpages to pdf online with PDFmyURL

reasons but because he campaigned to reunify with Turkish Cypriots. These plans

however were hampered by a Nationalist parliamentary election win in Northern

Cyprus a year later.

The ongoing recession mentioned above was hugely exacerbated on 11th July 2011

when ammunition stored in the sun at Evangelos Florakis Naval Base self-exploded

and destroyed the neighbouring power station which produced more than half the

island’s supply. The explosives had been intercepted in Cypriot waters between Iran

and Syria and, following an investigation, President Christofias was blamed for the

blast due to his failure to dispose of them (a responsibility which he vehemently

denied).

The combination of this scandalous incident, the Greek losses and a mismanaged

government budget brought about demands for the President’s resignation and an

EU bailout. He ignored warnings from his ministers and public pressure, instead

asking citizens not to over-react. Eventually he had to succumb when all three ratings

agencies downgraded Cyprus to negative and in June 2012 began talks with Troika -

however these came to an end when suggested measures did not suit his political

beliefs. He finally left office in February 2013 having failed to rectify the previously

healthy financial sector, proving that a communist government is not compatible

with the strict rules of the euro currency union.

What’s happening now?

Following the bailout, many lost confidence and predicted the end of Cyprus as aConvert webpages to pdf online with PDFmyURL

successful international business centre. However, it has surpassed all expectations

by returning to growth in the first quarter of 2015, a year earlier than first projected,

and officially concluding its bailout on 31st March 2016 using only 7.3 billion of the

earmarked 10 billion euros. Confidence has been restored amongst the international

business community, in the main due to bonds issued by the Ministry of Finance - in

particular a 10-year Eurobond (EMTN – Euro Medium Term Note) which raised 1

billion euros in October 2015 with a low interest rate of 4.25%.

Positive upgrades by international rating agencies have also contributed, and the

banking system is once again credible with the Bank of Cyprus posting positive results

under Irish CEO John Hourican. The bank stated recently that “the improving liquidity

position has allowed the bank to repay €600 million of emergency liquidity assistance

(ELA) post 31st December 2015, reducing it to its current level of €3.2 billion”.

As part of its reform the Bank of Cyprus has received many applications in response

to its early retirement offer which came about following the decision to reduce its

4,000 staff by 250. The danger of course is that the bank is left with the more

inexperienced employees; an outcome is expected shortly.

Unemployment is still expected to continue its decline, having reduced last year from

around 16% to 15.3%, with an expectation to fall to 14.6% in 2016 and further again to

13.3% in 2017.

Tourism figures are increasing, with revenue up by 4.4% last year compared to 2014,

Convert webpages to pdf online with PDFmyURL

and tourist arrivals up by just under 24% in the first 2 months of 2016 compared to

the same period in 2015. In 2017 Paphos, on the southwest coast of Cyprus, will be

named the European City of Culture, designed to celebrate the richness and diversity

of European cultures. This accolade will raise Cyprus’ international profile and foster

increased visitors to the island.

British expats continue to arrive in Cyprus, boosting demand for the euro. A Brexit

could negatively affect expats living anywhere in the EU but experts hope that the

close relationship between Britain and Cyprus holds enough value to keep any

adverse effects to the minimum should the Leave party get their way. Aside from the

sun, sea and slower pace of life the attraction is the lower cost of living – experts

Expatistan.com report that life in Limassol is 53% cheaper than London.

An increase of 46% has been recorded for property sales during January-February

2016, and motor vehicle registrations for the same period are up 25%.

The number of applications filed for new company registration has steadily increased

since 2014, particularly in the arenas of professional and financial services, which

appear to have overtaken tourism as the key driving force of Cyprus.

Shipping remains a strong business sector with an Energy boom expected to attract

significant investment following the discovery of hydrocarbon reserves in Cyprus’ EEZ

(Exclusive Economic Zone).

All of this demonstrates a remarkable resilience and determination to succeed, andConvert webpages to pdf online with PDFmyURL

the Republic may now be held up as a success story at the end of this economic

reform process.

Keywords

Cyprus Crisis Economy Bank of Cyprus Laiki bank Euro Pound Compare

Brexit Expat Currency Troika

About the Author

Share

FACEBOOK LINKEDIN TWITTER GOOGLE+

Convert webpages to pdf online with PDFmyURL

Natasha WoodContent Marketing Executive

FCA and HMRC authorisedand regulated

POPULAR

Converter

IBAN Checker

SWIFT Checker

Sanctions Checker

Exchange Rates

Save Money on Large Currency

Transfers

Bank Beating Exchange Rates

Save Money on Large Currency

Transfers

Great Foreign Exchange Rates for

Large Transfers

How Currency Transfers work

CONTACT US

Hobbs Court, 2 Jacob Street, London SE1 2BG

+44 (0)20 7740 0000

Convert webpages to pdf online with PDFmyURL

Disclaimer Privacy Policy Security of Funds Sitemap Cookies About Us Currency News © Currency Solutions

Convert webpages to pdf online with PDFmyURL