Cyprus goes from bad to worse: Tourists stay away and Russian money heads to the Virgin Islands
- Published on Sunday, 18 August 2013 11:27
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The good news this past week was that the recession in the Eurozone is over. Click here for the Bloomberg article and here for the New York Times article. I’m sure the people in Cyprus are relieved… as are the people in Greece, Ireland, Spain and Portugal. The reality is that the recession (more like depression) is just beginning in countries like Cyprus. Tourist arrivals are down, Russian money is moving to the Virgin Islands and capital controls are strangling what’s left of the economy.
“How’s business?” the taxi driver shouts, echoing the question. “It’s terrible! Terrible!” Chris Georgeo, 52, is at the wheel of his beaten-up minibus negotiating the tight roads of Larnaca, the holiday resort on the south-east coast of Cyprus, but he still takes both hands off the wheel to give a double thumbs down.
“We can’t survive, there are no jobs,” he says. “There are far less tourists. They’re scared to come here after the TV reports showing people not being able to get money out of the banks.”
In March, Cyprus’s banks froze all withdrawals and savers with the Bank of Cyprus later learned they had lost 47.5% of their savings above €100,000 (£86,000), while savers with Laiki Bank lost all their money above €100,000 as part of a deal to secure a €10bn (£8.6bn) bailout from the European Union, European Central Bank and International Monetary Fund.
Earlier it had been feared that all savers, no matter how much they had in the bank, would be forced to surrender a slice of their money. There had been panic. “Tourists are what makes this island: without them we have nothing,” Georgeo says.
It is the height of the tourist season and the latest figures from the Cyprus Central Bank say visitor numbers in June fell by 6.6% to 308,000. But anecdotal reports suggest things are far worse than that number would indicate.
Unemployment in July officially stood at 17.5%, at a record of more than 48,000 people. Surveys suggest the true figure is closer to 70,000, accounting for those who do not register for unemployment benefit, which is stopped after just six months.
Cypriot unemployment is the third- highest in the EU, behind Greece (26.9%) and Spain (26.3%). This compares with just 4.6% in Austria, 5.4% in Germany and 7.8% in the UK.
As in other troubled areas of Europe, young people are particularly badly affected. Official youth unemployment stood at 37.8% last month, up from 26.4% last month and far above the 13.8% long-term average. The official unemployment rate – which is 32% higher than this time last year – is likely to spike far higher at the end of the summer season because thousands are employed in temporary tourism-related jobs.
Cyprus has entered its third year of recession, with GDP showing a 5.4% decline in the second quarter compared with last year. Tourism accounts for almost a third of the island’s GDP.
Read the full story from The Guardian.
If this isn’t depressing enough, Russian money has found a new home in the British Virgin Islands…
Russians who used the offshore haven of Cyprus before the collapse of the island’s banking system appear to have shrugged off the Kremlin’s calls to bring back their money to the motherland, instead opting to park their cash in the British Virgin Islands, data from the Russian central bank suggest.
Russia’s direct investment to the British Virgin Islands increased nearly eightfold on a quarterly basis in the first three months of 2013, coinciding with Cyprus’s banking crisis, which saw Russian accounts in the Mediterranean country frozen.
Russian residents channeled $31.66 billion to the Caribbean U.K. territory in the first quarter of 2013, compared with $6.7 billion in the fourth quarter last year, the data from the Bank of Russia showed. By comparison, direct investment to Cyprus fell to $2.72 billion in the first quarter from $21.13 billion in the fourth quarter of 2012.
Read the full story from the Wall Street Journal.
… and remember the capital controls imposed last March to help ‘save’ the economy? According to government officials at the time, these controls were only supposed to be in place for a ‘matter of months’, but as we posted here earlier, capital controls once in place take years to remove. Last week officials in Cyprus finally acknowledged that removing capital controls will take years:
Cyprus has announced a roadmap to eventually lift capital controls in the eurozone country, but the process could take some years.
The finance ministry Thursday (8 August) laid out a four-step plan by the end of which capital will be able to move freely both inside and outside Cyprus.
“Cypriot authorities are committed to removing the restrictive measures and ensuring free movement of capital, as soon as conditions allow,” said the ministry.
The eurozone’s first ever capital controls were introduced on the island on March amid fears of a massive bank run.
Read the full article from the EU Observer.
The recession ends in the Eurozone? Who are you kidding? It’s only just begun for some.