Cypriots braced for economic turmoil after bailout

People in Faneromeni Square, Nicosia (25 March 2013) The bailout was the focus of coffee-fuelled discussions in Faneromeni Square

"Unemployment will go sky high at the end of this," said Chryso, as she sat in the shade of a tree sipping Cypriot coffee. "So it's really unfair on a lot of people."

On a public holiday in Nicosia, people tend to wander down to Faneromeni Square, within the walls of the old city, to don sunglasses and watch the world go by.

Chryso was reading the papers with her husband, Charalambous, digesting the news that had emerged from Brussels in the early hours.

"It's a message for the whole of the European Union," said Charalambous, referring to the deal that will radically restructure the Cypriot banking sector and impose huge losses on big investors.

"Germany controls everything," he added. "We can see that there are two zones within the euro."

It is a familiar theme on the streets of Nicosia and elsewhere - this agreement will be painful for almost everyone in Cyprus, and it is seen by many as confirmation of Europe's growing north-south divide.

Bailout deal

  • To qualify for 10bn-euro bailout, Cyprus must raise 5.8bn euros
  • Its biggest bank - Bank of Cyprus - to be restructured
  • Second biggest bank - Laiki - to be wound up and split into a "good" bank and "bad" bank
  • Accounts holding less than 100,000 euros will be protected in both banks
  • Deposits over 100,000 in Bank of Cyprus are frozen for now
  • Level still to be set at which funds on big deposits will be taxed
'Walk away'

Cypriots are now bracing themselves for economic turmoil and a long haul to recovery. It has stretched enthusiasm for the European Union to the limit.

"We may disagree with many of their decisions," says the pro-European former president, George Vassiliou. "But we must never forget our mistakes either."

Mr Vassiliou has argued over the past week that any deal with the eurozone must help preserve Cypriot banks. So has it saved the banking sector or destroyed it?

"It has destroyed part of it, an important part," he concedes.

"They said the banking sector was too big and had to be reduced by 40%. But they never said it should be done within 24 hours."

Mr Vassiliou insists that Cyprus still belongs in the euro, and that it will recover.

Archbishop of Cyprus Archbishop Chrysostomos II believes Cyprus should walk away from the eurozone in the next decade

But other influential voices are more sceptical.

"Cypriots forget things easily," says the head of the Church of Cyprus, Archbishop Chrysostomos II. "But I believe this time they should not forget this."

"In the next five to 10 years - it depends on the health of the economy - we should walk away from the eurozone."

'Different solutions'

The economy is unlikely to be healthy any time soon.

The radical restructuring of the banking sector means credit flows will dry up, and a sharp recession is forecast.

"A lot of people knew we needed to change," said Chryso, who works for a Greek shipping company, "but not like this."

"There should be different solutions other than the way it was done," she added above the constant chatter of voices.

"It's like they are destroying Cyprus."

"That's true," agreed Charalambous, who works in the banking sector himself. "But now we have to get on with what we have."

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