Some news from Cyprus, which sounds uncannily like news from Greece: the country does not have access to the international capital markets and economic reforms are going at a snail’s pace. Cypriot banks are drowning in greek junk bonds. That’s why they need a muti-billion euro lifeline now too…
More new faces are showing up at the soup kitchen in the southern Cypriot city of Limassol, entire families asking the orthodox church for a free meal. The church is warning that some radical new changes are afoot.
Cyprus needs a bailout. The communist ruled EU-member is cash-strapped. Unemployment is on the rise and the economic outlook is gloomy.
Fifty-seven year old Costas is looking for a job. Nothing special: just something, anything.
But instead of blaming the lack of competitiveness of the Cypriot economy, banks for their investment choices, or even the politicians for not having reformed the island’s economy in time, he blames the EU’s free labour market.
Costas Panayi, unemployed, Limassol
“In Cyprus there is a big problem now. Iit is getting worse, because more people come here to eat. They do not have food…300 people and families… and there are no jobs in Cyprus, because of the Europeans that came from Romania, Bulgaria, all over the place – and they take the jobs of the Cypriots.”
But the problem also lies elsewhere: Cyprus suffers from it’s close links to crisis-shaken Greece.
Just nearby the church’s soup kitchen, Cypriots and tourists mingle happily on the Limassol beach.
During the last few decades, the southern part of the still-divided island got used to stunning growth rates and huge cash-inflows from abroad.
But the greek nightmare throws a frightening shadow over the Cypriot paradise.
For more than a year now, Cyprus has been cut off from international capital markets. Double-digit interest rates make it impossible for Cyprus to finance it’s current budget deficit through market condition loans.
The party is over, the orthodox church reminds us and a new reality is beginning to bite.
When the church started the food programme in Limassol in 2003, just a few elderly people showed up. Since then, the number of hungry mouths has multiplied.
Giouli Chatzaki, Social worker, Limassol
“We have a lot of families coming here. The last two years we had a lot more families coming and asking to get some food because it is a free service and the reason is that one or even two of the parents have usually lost their jobs. We have children that can not afford to buy a sandwich or a juice, in the school”.
Cyprus may need a bailout that is more than half the size of its 17 billion euro economy.
The employment agency in Nicosia is crowded. The jobless rate just climbed over ten percent. Compared to Greece, it’s low. But for Cyprus, that’s extraordinarily high. For the last two years, twenty-eight old, highly qualified Andreas has been unemployed. Now he wants to leave.
Andreas Polycarpou, Unemployed, Nicosia
“If I were lucky, I would find a job in the rest of Europe, maybe in Germany, in France, maybe. Or I am looking for a job in Australia or Canada, but they want a visa for those countries and it is not easy to get a visa now”.
In Europe, youth unemployment is highest in Greece at fifty-three percent. Cyprus lies at twenty-nine percent, while Germany enjoys Europe’s lowest youth unemployment rate with just eight percent. The EU average is twenty-two percent.
Twenty-seven year old Yianna studied graphic design and downscaled her career hopes, but couldn’t even land a secretarial job. Her mother has been unemployed for two years and her father – who worked in the construction sector – is jobhunting too.
Yianna Philippou, Unemployed, Nicosia
“I’ve been looking for a job for six months now. All my friends are in exactly the same situation as I am, they can not find anything at all. Because of the crisis, I got fired by a company that had to close down one of it’s three shops”.
Cypriot banks’ balance sheets are suffering under the weight of bad Greek debt. An estimated twenty-three billion euros were channeled from Cyprus to Greece, hence the need for urgent recapitalisation.
Cyprus’ three biggest banks are exposed to the tune of fourty-two percent, seventeen percent and thirty-four percent respectively, with regard to Hellenic debt.
When investors agreed in march to what is called a “greek haircut”, it wasn’t just hair they lost.
This is especially true for the Cypriot banks that bought up Greek junk bonds. They lost three quarters of their value due to that “haircut agreement”.
Andreas Lazarides has been cutting Alex Apostolides’ hair since his childhood. Today, Apostolides lectures in economics and knows all about financial scissors and crisis management.
Andreas Lazarides, hairdresser, Nicosia
“Is there a possible solution? What is going to happen? Will we do better? Or worse? Or what?”
Alexander Apostolides, European University Cyprus, Faculty of Economics
“There has definitely been a failure of economic planning: we made decisions expecting a recovery, while it was clear that NO european recovery was in the works. But my worry is about the elections in 2013. I hope that there will be a cross-party agreement to the reforms, because that would definitely help keep tensions low.”
When downgrading Cyprus’ ranking to junk, rating agencies pointed out not just the bad banks but the government’s fiscal slippage.
Getting an appointment with the governor of the Central Bank of Cyprus is difficult these days.
While experts from the European Central Bank, IMF and European Commission check the finances of Cyprus’ banks AND government, the new Central Bank governor argues AGAINST deep cuts.
“What is your direct recommendation to policy makers and decision makers?”
Panicos Demetriades, Governor, Central Bank of Cyprus
“My policy recommendation is to basically enter into discussions that would actually look for a programme that protects economic growth”.
In another visible sign of the crisis, Cyprus today is plastered with for sale-or-rent billboards.
Symeon Matsis spent his career in both spheres: public AND private. He has deep inside knowledge of Cyprus’ financial sector, government and public administration. What can to be done to bring Cyprus back on track?
Symeon Matsis, Economist, Nicosia
“They have to reduce the number of civil servants and would have to reduce the level of remuneration. They should take care of the health sector and control the cost of health and also deal with the pension scheme, because that’s one very important area where the government has not taken adequate measures”.
The situation is critical. To reduce the government’s bloated budget deficit, the European Commission wants Cyprus to set up far-reaching health care reforms.
Over two-thousand work at the new public “General Hospital” of Nicosia – including 170 doctors.
Evagoras Nicolaides, Director of Cardiology, Nicosia General Hospital
“The staff are facing a crisis of morale, because of the growing numbers of patients, the increased work and through the fact that their salaries have started being reduced as one of the measures taken because of the crisis.”
Let’s go over to Agros, a small village in southern Cyprus’ mountain region.
To help ease young people into employment, the European Commission asked the Cyprus government to liberalise the labour market.
Marios and Andri are victims of what is called “brain-waste”: long, expensive studies…but no or just small job offers…
Marios Agathokleous, Unemployed, Agros
“It is difficult right now. I studied for four years. Even so, I cannot find a job that corresponds to my university studies, to my qualifications as a computer scientist.
Half of my friends are trying to find a job too, but they can’t get one either, they have the same problem.”
Andri Chadjipetri, Receptionist, Agros
“I can give you an example of my own: when I applied for a job, the boss there told me that I have the qualifications but if I wanted to work there, I’d have to do so without any pay for three months, to see if I like it and to see if I will do everything he wants me to do. It’s almost as if all those employers aren’t searching for qualified employees, but for slaves instead!”
There is a little glimmer of hope: Cyprus recently discovered rich natural gas resources in it’s southern territorial waters, which could be ready for extraction by 2016. But such ambitions should not replace structural reforms today.