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28th March 2024
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HomeArticlesCyprus: Dealing with a crisis

Cyprus: Dealing with a crisis

THE Republic of Cyprus became a member of the European Union in 2004 and joined the Eurozone, the group of countries that have the Euro as their currency, in January 2008.

During this period the economy of the country grew faster than that of other European countries; credit expanded rapidly and the banking industry became very large relative to the size of the economy.

In the video Delia Velculescu, IMF Mission Chief for Cyprus says: “If you looked at Cyprus in the period between Eurozone entry or even before, to the run-up to the crisis around 2008, what you saw was Cyprus growing at a very brisk pace of about 4% per year, which was much better than many other countries in Europe; so everything seemed well.

“However, under this seemingly good performance there were very large economic imbalances building up.”

Following the onset of the global crisis and then the European periphery crisis, growth slowed down and the Cyprus economy entered into a prolonged recession in 2012.

Ms Velculescu adds: “What happened in Cyprus at the time was a slowdown in growth, the property market turned around and prices were declining rather than increasing, banks started lending less.

“The culmination of all of this was a loss of market confidence in Cyprus itself and the Government essentially lost market access – it meant that it could not borrow any more to finance its spending and its obligations.

The nine and a half minute HD video below includes comments and expectations from ordinary citizens who have been hit by the crisis.

The original video may be viewed on the IMF website.

Further reading

The Economic Adjustment Programme for Cyprus Third Review – Winter 2014

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7 COMMENTS

  1. What a load of gobbledygook! This video skips all the main issues – I did not know the IMF has taken up painting in brilliant white.

  2. @Nigel. All they seem to do is make announcements about what they want to do and what they will do but nothing seems to change on the ground. It’s just words and words are cheap. Action talks!

  3. This video is (at best) airbrushing selectively over the real issues and downright propaganda at worst.

    BEFORE the crisis hit – the Central Bank and government warned the clearing banks NOT – repeat NOT to lend in CHF. They ignored the warning and got brokers in the UK to start a feeding frenzy.

    AFTER the crisis hit – the banks responded by over doubling interest rates (when banks around the world were laying off staff and re-structuring their assets). Incidentally – people like us were chasing down the terms of our loan agreements – as we were exceptionally scared where things were going. No-one in the banks lost their jobs – and we frequently couldn’t find our bank manager in summer – as after 2:30pm – he was down at the beach!!!

    The rest of the people in the film – I mean honestly. “Things are tough” Really? No kidding!

    Please Mr & Mrs IMF – you know where the major debtors are and so do we.
    We know what you need to do to fix this and so do you – and it will not be resolved by plundering overseas assets to fix the sovereign corruption in the Republic (we don’t have nearly enough to bale out that)!

    If I was scared the IMF and Troika were being suckered before this video – I REALLY am now! Either that or they have an opaque plan no ordinary person can see – and this video is window dressing it…

  4. @Janner – There are several references to NPLs in the Third Review document.

    For example, the entry in the Management Summary reads:

    There has been further progress toward the restructuring of the financial sector, and dealing with the high level of non-performing loans is now a priority. The restructuring plan of Bank of Cyprus was approved by the Central Bank of Cyprus in November 2013. The consolidation process of the cooperative credit institutions has continued and their restructuring plan was approved by the Commission in February 2014, which enabled the recapitalisation with programme money. Deposit outflows have slowed and banks’ liquidity buffers have strengthened. Reforms to supervision and regulation have also progressed satisfactorily. With key milestones in the authorities’ roadmap now completed, the second phase of gradual relaxations of restrictions has started. Despite this progress, challenges remain, notably relating to the need to clean up banks’ balance sheets and reduce of private sector indebtedness. Both are needed in order to restore credit and sustainable growth and require the establishment of an appropriate debt restructuring framework. Work also needs to continue on strengthening the implementation of banking sector regulation and supervision as well as of the anti-money laundering framework.

  5. Delia states that most of the difficult decisions have been taken. I know she is the expert but from where I stand it looks as if the most difficult decisions have not been made and indeed skirted around at all costs. Yes, you’ve guessed it…..NPLs! Surely this is the single most important decision? To use a property analogy. If a house has significant structural defects why bother touching up paintwork inside or dressing the sofa with cushions! You have to fix the structural problem or the whole thing will collapse!

    Also, the same old problems exist for Cyprus which hugely affects the economy and confidence. Have any SGOs been sold yet? Have the scores of public sector posts been cut? Has the all important immunity from prosecution for public officials been changed (this alone is a significant indicator of government intentions)? Has anyone been punished for corruption as a result of the endless investigations? Personally, I wouldn’t worry about setting up speed cameras when all these massive problems persist.

  6. It was good to see that something positive is happening but I doubt that the people that lost out on their deposits are happy, especially as the large companies that owed money to the banks and contributed to a large extent to the collapse have not had any action taken against them and either can’t or will not repay their loans.

    The foxes are still guarding the henhouse!!

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