The calm before the storm
Prior to 2008’s global recession the world was doing well, and then the domino effect of bad debt happened, swiftly moving from country to country, continent to continent as today’s modern world is more closely tied together than ever. Cyprus however was somewhat unaffected like a small paradise in the middle of multiple storms. Yes of course, the global problems could be seen from the sunny island, and yes, the ripples could be felt, but for the most part the relaxed Mediterranean way of life went on as it always has.
In March 2013 as some stronger economies were well and truly on the road to recovery, the storm finally hit Cyprus; and when it did come, there was no slow build up, no greying of the skyit came with full force and fury like it had been storing up energy, ready to cause as much chaos and as bigger disaster as possible. Almost overnight the banks were closed, money transfers were almost impossible, and even ATM’s were restricted. Cyprus has a large corporate services sector, which was hit quite badly as companies and investors tried in vain to withdraw their assets, eventually some accepted the situation and in order to continue their own operations looked for bank accounts in other jurisdictions. The storm lasted for a few weeks slowly easing up to a degree. With banks failing, property market crashing and a serious lack of liquidity the Cypriot economy was on the verge of doom.
Bailout, Bail-in and Austerity
Eventually Cyprus received €10 billion from the EU, but this was no gift, far from it. The EU pledged this money with some heavy parameters amongst them the banking system would be restructured, public positions would be rethought and most controversially there would have to be some kind of “bail-in”. This was a first, nobody anywhere had seen this action before, certainly the Cypriot government struggled with the concept and more so how to enforce it. The final result was any deposits of more than €100,000 (unsecured) would have to pay into the scheme. Things quickly became hard and with companies going out of business and unemployment on a rapid rise things were set to becoming harder.
When the dust settled
2013 did prove to be a tough time in recent Cypriot history. However, it seemed to be much shorter lived than was expected. Whilst the unemployment is still high and investors still have understandable concerns, things on the island in 2014 are not just returning to normal, but in some cases are coming back better than before. You can feel new life pumping through the arteries of the island, new businesses are springing up, people are spending and foreign investors are returning. It could be said that like Charles Darwin’s natural selection the weak have fallen and the strong have survived leading to a better evolutionary route.