Living with a 10 billion euro bailout – the story from the streets of Cyprus

Pensioners protest in Nicosia. Katia Christodoulou/EPA

The nightmare for Cyprus started in March 2013. The country’s banking sector faced a sudden squeeze. The two biggest players – Bank of Cyprus and Marfin Laiki Bank – were in danger of a collapse which would have sparked a huge negative shock for the island’s economy.

And it wasn’t just Cyprus. Fears circulated that a meltdown in the Mediterranean could inflame problems in Europe and beyond. Faced with the potential for a domino effect, the Eurogroup (the main forum for the management of the single currency area) finance ministers offered a €10 billion bailout. Eighteen months on, the bailout has altered the lives of ordinary Cypriots and turned a country against the institutions which struck the deal.

Impact points

The Eurogroup deal has left its footprint across the country. Commerce, manufacturing and construction suffered the first hit, hampered by low levels of cash on their books with which to weather the problems facing bank finance. Unemployment followed, as did secondary effects on citizens’ ways of life, their psychology and family relationships.

I spoke to one shopkeeper at a clothing shop in Limassol, who encapsulated the problem at street level:

The level of consumers is very low, there is inadequate demand, we are thinking to sell our businesses because we cannot cope with it.

Shopkeepers are on the front line, struggling to manage. There are cases where stores have been forced into bankruptcy. It is no surprise, perhaps, as their customers see incomes falling and adapt their way of living and the organisation of their households. Statistics reveal that salaries and pensions in the public sector have been reduced by 9-15% in 2014 and all indications show that they will remain at these levels until 2015 where a modest recovery is expected to appear, followed by a slow strengthening of the economy in 2016.

Anxiety

The coping strategies would be familiar to anyone who has lost a job or suffered a sharp drop in income, but this is happening on a grand scale. Many people have been forced to change their lifestyles. One Cypriot working in the construction industry told me:

We eliminate unnecessary expenses, trying to survive with the essentials. We have put limits on our shopping, outings, food and the children’s expenses.

This crisis has also changed people’s psychology. Tensions are building within households, sparking depression and anxiety about the future. A 35-year-old woman with a husband and three children, working as hotel receptionist, told me:

We are not happy as we were before. We are always thinking about how to face our problems. We have bank loan and home mortgage. We cannot handle the payment of the monthly instalments with our reduced monthly salary. We worry to not end up on the streets without a home.

Eurostat

The Cypriot unemployment rate was above 17% in March 2014, and although a significant fall has been noticed in recent months, there are no explicit indications yet of genuine stabilisation. Graduates with university degrees and a masters qualification are still working part time as waiters or pizza delivery drivers, and can be earning as little as 300 euros per month. Faced with a struggle to pay water and electricity bills and rent payments, they decide to emigrate for better job opportunities and salaries.

Bailout politics

It should be no shock that Cypriots pile blame onto those that pushed through the bailout. They express anger at those who led Cyprus into the cells without having been sentenced.

They show their dissatisfaction at the European Union and its member states who failed to offer Cyprus solidarity. One 70-year-old pensioner characterised it as “genocide”. He expressed a common view that a violation of the human rights of fellow Europeans was permitted to proceed unchecked.

Entrepreneurs and wholesale merchants are also still enraged by the so-called “haircut” on bank accounts holding more than 100,000 euros which was imposed to secure the bailout. It might seem to impact only the wealthiest part of society, but the effects are felt everywhere. One entrepreneur in the carton industry characterised it as:

… an unprecedented heist against the people of Cyprus that leads to the bankruptcy of the country’s economy and ultimately Europe’s, and leaves its people in misery and poverty.

Domestic disharmony

Cypriots I have spoken to argue that the previous government and its political parties have brought Cyprus to this sorry state by failing to take the required actions. One said:

We have learnt how the political parties really work in Cyprus.

And the opinion is not glowing. Politicians claim they have learnt from the crisis, but few people are convinced. One said:

The decline of the economy, for which primary responsibility lies with the political and banking system, has caused questions about democratic institutions. Extremist policies, inactivity and slavish subjugation have led to economic disaster and social inaction.

Moving on

Yet there is a glimmer of hope. Cypriots are trying to adapt to the new situation. In some ways, they believe that things might even have been worse, and the fear of further disaster has begun to dissipate. Young people must be patient and understand that the current crisis is not permanent.

IMF chief Christine Lagarde. IMF, CC BY-ND

And if the landscape calms, then perhaps it is the right moment for Cypriots to observe that the International Monetary Fund (IMF) did not operate according its altogether benign Articles of Agreement. For the people who live with the bailout, it represents evidence that the IMF’s idea of its own purpose has changed and instead reflects the interests of powerful forces.

The President of the Republic of Cyprus, Nicos Anastasiades – elected in a landslide victory as the crisis reached its peak and who struck the Eurogroup deal within a month of taking office – has given a damning verdict on the process in an interview with The Huffington Post:

To be honest, I was disappointed by the position adopted by my good friends [in Europe] in this time of need, but unfortunately you cannot only blame those who are obliged to implement austere measures. The state itself is also responsible for committing a series of mistakes or for allowing others to use the country as a guinea pig.

He believes Cyprus was used to “experiment” with a new model for dealing with banking crises. It is a view which leaves many Cypriots thinking the bailout has all the hallmarks of a kind of neocolonialism, and fits into a narrative that the IMF seeks to dominate and take under its control so-called weaker countries.

The story goes that lending schemes like the one imposed on the people of Cyprus are simply the mechanisms to achieve it and that the IMF would do better to be more open about its new set of objectives. It is certainly a story that makes sense to the shopkeepers, the unemployed, and the entrepreneurs of Cyprus.