The future of Cyprus: A troubled island story

The Economist

Its bail-out may keep Cyprus in the single currency, but at a high cost

DREAD was mixed with anger. Cypriots feared that deposits in the two largest banks, Bank of Cyprus and Laiki Bank, might be taxed or converted into worthless equity—and worried about the economic effects. The glum mood in the shops and cafés of Nicosia was little improved when the terms of their country’s €10 billion ($13 billion) bail-out emerged on March 25th. The deal will close Laiki Bank, restructure Bank of Cyprus and impose big losses in both institutions on deposits above €100,000.

Many anxious Cypriots queued patiently to draw cash out of ATMs. Others protested angrily in the streets, waved Russian flags and talked about leaving the euro. They had hoped that joining the European Union (in 2004) and the euro (in 2008) meant solidarity from their fellows. The troubles of the two banks were caused, some believe, by a decision to buy Greek government bonds that were then restructured. They feel they are being punished by the EU for no fault of their own.

Victimhood is hardly new in Cyprus: the island’s troubles are routinely blamed on outsiders like Turkey, Greece, Britain or (now) Russia. What stuck in the craw was being told that the Cypriot business model had to change. Not all agree: speaking at a conference organised by The Economist in Nicosia on March 22nd, Chris Pissarides, a Nobel-prize-winning economist, argued that relying on business services and tourism in an economy with no manufacturing tradition was quite sensible.

Turkey to the rescue Cyprus?

Timothy Ash*     The Financial Times

Greek Cypriots must be thinking that with friends like these (the EU and Russia, both seeking to extract their pound of flesh for any bail-out), who needs enemies?

Well, what if Cyprus begins to think outside the box, and what if it goes to its erstwhile enemy, Turkey, for assistance?


How about this: Turkey provides €7bn in assistance, saving Cypriot savers from the chop in exchange for Cyprus agreeing to the terms of the 2004 Annan peace plan for the unification of the island.

In return for its cash, Turkey would get agreement on the peace plan it backed back in 2004 and which was supported then by two thirds of Turkish Cypriots in an island-wide referendum. Admittedly, it was rejected by three quarters of Greek Cypriots but this was in no small part due to the intransigence of the then Papadopoulos administration.

By so doing, Turkey would save a very big chunk of the substantial aid (and significant military spending) it pumps into northern Cyprus every year, and the north would gain access to EU structural funds. Turkey would also remove a big Achilles heel in terms of its own EU accession bid, stalled by disagreement over the divided island.