Posted by: nikusjka | March 31, 2013

Crisis in Cyprus. Insider`s view.

When on late afternoon on 16th of March my friend called me and said to go to ATM to withdraw some cash, because banks have blocked all the transactions, I couldn`t imagine that during the next 2 weeks tiny island, where I`m currently living, will become the most known and talked about spot on the whole planet, probably. From Moscow to London, from New York to Kazakhstan – every news broadcast, every newspaper, everybody was talking about Cyprus!

I`m still wondering how such a tiny economy managed to create such a huge fuss on the global economic scene. If I think a little bit about it, I can come up with two relevant questions, that might help to solve this mystery:

  1. How much foreign money was invested in this island that it made everyone almost paralytic when it all happened?
  2. Is the banking system EVER gonna be the same?

Cyprus is (or at this moment I guess “was”) a tax heaven for many investors from all around the world. Mostly for Russians, who for many years have brought huge sums of money here. In addition, they`ve boosted tourism and real estate markets here, by purchasing flats and villas. Until recently real estate prices in Limassol could have been compared to Moscow, which by itself is unnatural for a place like Cyprus.

Offshore companies, brokerage house, investment advisers and other related professionals – all these together with sunny weather facilitated a perfect climate for international money flows to Cyprus. The size of banking system in Cyprus is 5 (!!!) times the size of GDP. Incredible, isn`t it? This really makes me think that this economy was artificially boosted with no precautions taken by the government. 50 years ago Cypriots were riding donkeys and now they drive Porches and build business centers. Such fast growths without any stable base should have had consequences. My dears, we are facing them now.

Second question brings other, more general questions about banking system. Most of us and me personally took the confidence in the banking system for granted. Maybe because I never had that many funds in the bank to start worrying about it. Since I`m moving around a lot, for me banks where providing a tool to manage my funds across the borders, giving me opportunity not to carry cash around in fear that someone going to steal it. COMFORT – that what banks are for me. Or were. Because now, not only people of Cyprus, but all over Europe will think twice before leaving their savings with a local bank. Because now no one is sure anymore if he will wake up tomorrow and his life savings are still there. Because if EU allowed this “haircut” in one country, who can assure that same thing will not happen tomorrow in another country?

These feelings, that people have now, might be crucial for future development of EU. From the beginning banks built their status on the TRUST. Trust that people have in them. Trust that with the bank they`ve chosen their money is safe and more valuable than under their own pillows. Not this trust shattered. Shattered hard.

So will the banking system ever be the same???

P.S. But you know, Cypriots are optimistic. I don`t know if that`s the sun or the fact that such a small nation has no other choice, but to believe in good. I don`t know. But all these days when the banks were closed, the day that bank opened… People are calm. I have a feeling that international media were talking about the crisis more, than the local people here. Cypriots know, that they can`t change much anyway and anger will not help it. Cypriots are very tolerant to the measures taken now and believe in bright future for their homeland. I guess, that`s the most important.

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