Banks have been closed since word got out that the Cypriot Parliament is considering seizing a percentage of banks deposits. (Photo by Shemaine Bushnell)
The conversations - and expressions - have turned serious in the coffee shops of Nicosia. (Photo by Shemaine Bushnell)
The run on ATMs could foreshadow a run on banks themselves, when they reopen. (Photo by Shemaine Bushnell)
NICOSIA, Cyprus – And so it begins…what I had been passively worrying about the last week has now hit me hard.
I went to the pharmacy today to buy some milk and medicine for my 3-year-old and the pharmacist informed me that they were no longer taking credit or debit cards. It’s cash only, because that’s what their suppliers are demanding. The same is true at several gas stations on the island, and I don’t doubt that more will soon follow. The new rules come as banks are closed while lawmakers try to find a way to meet the European Union's conditions for a bailout. The scariest plan under consideration would have the government skimming as much as 10 percent off of all bank accounts.
The fact is, Cyprus has prospered for many years. Since I first visited the island in 1995, the economy has steadily grown. Property values doubled and tripled, banks were doling out loans like money grew on trees. Unlike in the U.S., you only needed a good guarantor to back you up. The Cyprus Stock Exchange was on the rise before the bubble burst. Many foreign companies invested in Cyprus due to its healthy financial sector. And many foreigners, a majority of them Russians, had decided to make Cyprus their home, depositing their money into local banks.
When the banks finally reopen in Cyprus, depositors will be withdrawing their money, with or without the levy. The public trust in the financial system has now been eroded.
But in the last year, the decline has been palpable. Cypriots were worried. Loans went into default. Shops were closing one after the other. Makarios Avenue, a major shopping strip in the capital, Nicosia, closed as more than 20 shops had hung “for rent” or “for sale” signs. What once was the top shopping hub for the entire island has now become a ghost town.
Yes, the coffee shops are still full in the afternoons, but the chatter and facial expressions have taken on an increasingly pessimistic tone. Coffee shop talk used to be about the latest trend in fashion, gossip about friends and political opinions. Now it’s more about which ATM is still dispensing cash, and when will the banks reopen, or even if business will still be taking credit cards after tomorrow.
As I drove around Nicosia the past week, I was surprised to see security guards next to the ATMs at several banks. It made me a bit nervous. Some branches had lines of people waiting to withdraw money from the machines. Those that did not have a line were obviously out of money.
Until yesterday, I had decided to save what cash I had on hand and use my debit card instead. This would leave me with cash in case I would need it, save me from standing in those long ATM lines and at the same time use up my money in my account in hopes of avoiding the levy. But this won’t last long. If and when the banks open, money will have to be withdrawn. And as with many Cypriots with international businesses like mine, money will also have to be transferred to other countries in order to purchase goods for customers in Cyprus.
Many Cypriots pay our bills with automatic, monthly bank deductions. If banks stay closed, bills will not be paid, Internet and cell phone service will be interrupted, and even electricity and water could be shut off. I do not believe it will come to such a desperate situation, but I have made my own preparations, as I’m sure other Cypriots have done.
All in all, the situation is dire. Cyprus has its back against the wall. It makes me wonder what the European Union, the International Monetary Fund and the European Central Bank are thinking. These are supposed to be the intellects of Europe, advised by the best economists in the world. Didn’t they understand that threatening to tax the deposits of ordinary folks could prompt a run on banks, both here and in other EU countries? If they can do it to Cyprus, what’s to stop them from doing it to Italy, or Spain, or Greece?
When the banks finally reopen in Cyprus, depositors will be withdrawing their money, with or without the levy. The public trust in the financial system has now been eroded. And we will revert to hoarding money in our homes, just like they have done in Greece.
There were high hopes after Cyprus joined the EU in 2004. Cypriots thought, ‘Why not?’ The EU would help strengthen our economy, bring us closer to Europe and maybe even help to unite the island once and for all (an issue that has been in the forefront of Cypriot political discussions since the invasion by Turkey in 1974).
But all this has changed. There has been no unification of the island, the tattered economy now needs a bailout, unemployment has risen and some Cypriots are questioning whether it was ever beneficial to join the EU at all.
Since one week ago, when new President Nicos Anastasiades flew to Brussels to discuss the possible $13 billion bailout for Cyprus, Cypriots were hopeful. We had a popular president elected just one week earlier. It was hoped the bailout would inject new life into the economy.
But now, Cypriots are angry. The EU’s condition that Cyprus tax bank deposits was, for Cypriots, unreasonable. Of course, we all want to contribute our fair share but deposits are sacred, not only in Cyprus but in the rest of the world.
It is now a waiting game. A decision must be made soon or Cyprus faces bankruptcy and a possible withdrawal from the EU. As with all Cypriots, I hope this crisis resolves and we can start rebuilding Cyprus to the way it once was.
Or I can at least be assured of buying milk and medicine for my child.
Shemaine Bushnell was a longtime Fox News journalist based in Los Angeles when she and her husband moved to his native Cyprus in 2005. They have an importing business in Nicosia.