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Tags: Cyprus | economy

Cyprus Scrambling Back from the Brink of Bankruptcy

Thursday, 13 March 2014 11:54 PM EDT

A year after a financial earthquake shattered years of prosperity in Cyprus, an austerity plan has put the eastern Mediterranean island back on track despite the bitter pill of rising unemployment.

On the verge of bankruptcy because of the high exposure of its banks to Greek debt, Cyprus in March 2013 was granted a 10-billion-euro ($13.8-billion) international bailout, almost half of which has now been paid out.

The inevitable bank restructuring has thrown many people out of work.

"I need a job soon, very soon. I was looking for a job from the first day I left the bank," said former employee Akis Kourouzides, 45, who has been unemployed for months.

"I'm looking for a new job — starting from the beginning."

One downside to the financial lifeline was the liquidation of Laiki, one of the island's main commercial banks, and the restructuring of the main lender, the Bank of Cyprus.

This also resulted in depositors suffering a savings "haircut" of between 47.5 percent and 100 percent of balances above 100,000 euros.

The bailout also meant drastic budget cuts and an extensive program of privatization of unwieldy state sector corporations.

At the beginning of March, the so-called troika of international lenders — the International Monetary Fund, European Commission and European Central Bank — issued a satisfactory report card.

It said the island was on track, with a recession of 6.0 percent in 2013 two points lower than forecast, allowing for a new tranche of aid of 236 million euros to be paid.

But the future is far from rosy.

The meltdown has resulted in rising unemployment, which reached 16.2 percent in the third quarter of 2013 (11.8 percent in 2012). Most — 38.5 percent — are under the age of 25, and 19 percent unemployment is forecast for 2014.

Such figures may pale in comparison with 27 percent jobless in Greece, but they are still hard to take in a society where as recently as 2008 unemployment was still an abstract concept.



That year only around four percent were out of work, and the Gross Domestic Product had been in almost constant increase for 40 years.

"We have never had such a situation before," said Andreas Christou of the labor ministry, adding that he foresees no improvement in the short term.

Young graduates "are currently our biggest problem", he said.

Banking has been among the hardest-hit sectors: according to bank employees' union ETYK, 2,000 member jobs have disappeared from a pre-crisis total of 11,500.

Business has also been suffocated, as the dozens of empty shops lining Nicosia's former shopping mecca Makarios Avenue bear witness.

"Cyprus society is still in shock," said Kalliope Agapiou-Josephides of the University of Nicosia's department of political and social sciences.

"It was thought we had an economic and democratic model that was constantly developing for the better. We never thought there would be a total reversal of the situation that could lead the country into such a dire situation."

It is the younger generation, the "best educated people who benefited from the previously strong economy, who will pay the greatest price", she added.

The labor ministry's Christou said many young people are now opting to stay abroad after graduation, delaying their return for as long as they can.

Others have taken the path of emigrating in a brain drain whose consequences have yet to be evaluated but which Christou predicts as "important".

As a stopgap measure, the government has implemented a plan that will allow 2,500 young graduates to gain job experience for six months, earning 500 euros monthly.

A second project for another 2,500 graduates is expected soon.

In addition, people are being trained for future posts in the gas industry after the discovery of potentially vast offshore gas deposits that it is hoped will make Cyprus hit the jackpot.

One way Cypriots have coped with the fallout of the financial meltdown has been to embrace the strong tradition of close-knit families.

Children help parents whose pensions have been decimated and "yayas" (grandmothers) more than ever look after young children and cook for the whole family.

"One of the advantages Cyprus has is this family safety net that lets nobody fall through," Agapiou-Josephides said.


© AFP 2022

A year after a financial earthquake shattered years of prosperity in Cyprus, an austerity plan has put the eastern Mediterranean island back on track despite the bitter pill of rising unemployment.
Thursday, 13 March 2014 11:54 PM
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