This article has been published yesterday by BusinessInsider under the title CYPRUS ONE MONTH LATER: Uncertainty Has Broken The Morale Of The People. I have previously contributed to BI, with pictures of the Bank of Cyprus protest outside the Central Bank and with a brief comment on the first reactions to the Eurogroup meeting.
It has been a month since the Eurozone meeting where Ministers of Finance decided that a haircut on local deposits should take place, thus destroying one of the two productive sectors of the island.
You cannot walk in the city centre of Nicosia without stumbling upon one of the many ‘For Rent’ signs in windows where shops used to be. The people of Cyprus are starting to experience the aftermath of the economic destruction. The physical manifestation of the assault is experienced through unemployment, ‘Closed’ and ‘For Rent’ signs and an overall feeling of degradation.
The psychological impact is even greater, since the people of Cyprus are kept in the dark. Everyone is waiting for the next government announcement or the next document leak . According to the latest Central Bank announcement, the capital controls will remain at least until the end of the summer. It is doubtful whether the local businesses will be able to survive that long. There is no liquidity in the market and firms close one after the other.
Those that are lucky to still have a job are very much aware of the impending hardships and try to save as much as they can. No one is buying anything beyond the minimum necessities and this is unsurprisingly taking its toll on the economy. Uncertainty has broken the morale of the people. They don’t know whether the economy has reached the bottom and will start to recover or whether the downfall has yet long way to go. It is impossible to do damage control, assess what has been lost and move on. The people of Cyprus are in limbo, unable to turn the page and move on with their lives. They still don’t know what the amount of the haircut will be, how it will be distributed, what the memorandum of understanding with the troika involves and how it will affect them personally.
Those working in the civil, semi-governmental and banking sector, are affected by this uncertainty the most, since they have more to lose. They make up of the middle-class of Cyprus, which enjoyed high standards of living in the post-1974 period. The people of Cyprus, having lost their houses in the 1974 Turkish invasion and subsequent division of the island, consider important to own a house. Thus, it is common for middle-class families to have a mortgage. Today, they find themselves in a situation where they do not know whether they will be able to continue with their mortgage payments, which are tailored to their former lifestyles. Moreover, they don’t know whether they will be able to sustain themselves in their old age, as the fate of their retirement funds, held in the two big banks, is still uncertain.
The politicians, both local and European only make the situation worse. Those affiliated with the conservative government that is now in power terrorize people about the consequences of leaving the euro and seeking a solution outside the troika. The communist party, which was in power until February 2013 and which invited the troika to assist, is now against it, but it has yet to provide the much-promised alternative plan that it would alleviate the situation.
In the meantime lists of people that transferred money out of Cyprus prior to the Eurogroup meetings are publicised. The family and the law firm of the current president is often featuring prominently in these lists, making people feel even less confident about the ability of the government to handle the situation. Also, the fact that two of the three members of the committee appointed by the president to inquire into those responsible for the economic situation in Cyprus have resigned further enhances the feelings of uncertainty and despair.
On top of all that, Cypriots watched the European MEPs on April 17th proclaim how bad the case of Cyprus was handled whilst agreeing to follow through with the decisions made by the Eurogroup.
All this adds up to a very bad situation, demonstrating that the costs of the European Union decision-making are much more complicated and not easily quantifiable. Unfortunately, the human impact of the European policies is not factored in the decision-making.