Paul Mason

What’s kicking off in Cyprus

What's kicking off in Cyprus
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Downtown Nicosia has been closed, on and off, for more than a week. On the terraces of the upmarket coffee shops, the torches flicker and the disco music babbles. When the Cypriot government shut the banks, many retailers decided to close as well, so the mannequins stare each other out across semi-deserted streets.

As the president tries to negotiate the final bailout in Brussels, I hunch over a cappuccino with a senior MP, who lists the country’s future options. They are limited: tourism, gas, financial services — though without a banking sector, that’s going to take some doing. As we talk, I realise the MP is also quizzing me: I am a veteran of four bailouts. The Cypriot government has had four weeks in office.

Up against the might of the ECB and IMF, and with Germany pulling the strings, the Cypriots have proved almost incapable of statecraft. The president’s threat of resignation sealed a deal in Brussels, but at every juncture the government has seemed as frozen as its country’s cash.

Most people here don’t even begin to understand what the deal will mean. But if you go on the basis of previous austerity measures, the economy will probably collapse by 20 per cent over the next three years.

In the mountain village of Kakopetria we arrive in time for Mass. The church is packed for national independence day, which is also the festival of the Annunciation. Families and neighbours all chatter freely as the priest sings and the incense wafts. Sociologists call this ‘social capital’ and they’re going to need it, because the actual capital is about to leave the country.

‘There’s a big crisis; people will starve,’ one black-clad elderly woman tells me. ‘We are old but our children, our grandchildren, they will starve.’

Pambos Charalambous, a town councillor, shows me round the town’s small museum. ‘We’ve got a Sten and a Bren gun,’ he announces: the museum is themed around the guerilla war waged by EOKA against the British in the late 1950s. A third of the money for the museum came from EU funds but now it will probably close, as tourism and local spending power collapse.

This is a conservative society: Christians, nationalists, traditional old communists, small farmers, businessmen. It was for just this stratum of ‘middle Europe’ that the EU and eurozone were created.

In the square below are some of the guys from the generation that used the Bren guns. Emilios Lemonaris, a barrister, won’t give his age, so I ask if he remembers the war. ‘Which one?’ he chuckles. ‘We fought the Germans, the British and then the Turks in 1974. This crisis could be worse than 1974. Not in a physical sense, but after 1974, when the economy was devastated, at least we had our own currency and we controlled our own country.’

There’s a lot of angst, suddenly, about anti-German feeling. From a distance, it can be read as bigotry. What I’ve encountered here is a response to what people see as a giant hypocrisy.

‘Two thirds of the German shipping industry is based here,’ one former regulator tells me. The Cypriot government website lists the benefits: ‘no tax on profits, no capital gains tax on the ships themselves, no income tax for the crew’, and no limits on company leverage. A quarter of Europe’s ships are registered here.

It’s a low-tax situation that suits an important global industry, and like the arrangement with offshore banking, the Cypriots thought they had EU approval: the whole arrangement was rubber-stamped by Brussels in 2010.

Cyprus had banks leveraged up to seven times GDP in part because the economy itself is a relatively rule-free place to facilitate the physical trade in goods and services across the globe. Because it has a beneficial tax treaty with Russia many Russian companies are registered here, and that attracts the banks.

This was the economic model the EU welcomed, just nine years ago, into the union, and five years ago into the single currency.

Dinos Constantinou, director of the Latvian bank TKB here, says: ‘145,000 people work in the finance sector, out of 700,000. If you’re going to destroy that sector, what is the economy going to do?’

As I write this, workers from the Bank of Cyprus are swarming over the steps of the central bank, protesting at the peril their bank has been plunged into by absorbing the bust Laiki bank. Some are so angry they storm up to their own leaders and begin screaming at them, and banging them on their chests.

With the decision-makers cloistered in one panicked meeting after another, there’s nobody with any greater authority around to shout at.

Paul Mason is the economics editor of BBC Newsnight, and the author of Why It’s Kicking Off Everywhere.