The deal struck in Brussels in the early hours of Monday morning may have saved Cyprus from tumbling out of the euro, but for the residents of the tiny island nation in the eastern Mediterranean, there was little to celebrate. “We fell like we’re just one step away from total death,” says Demetra Kattou, 47, who teaches French at a school in the city of Limassol. “We feel like we’ve been treated unfairly and without mercy. Things are happening too fast.”
The agreement avoids a controversial tax on bank deposits, a measure the country’s parliament rejected last week. But it’s likely to devastate the country’s financial services sector—the source, according to the Cyprus Employers & Industrialists Federation, of 80% of the country’s GDP and 72% of its employment. In exchange for a 10 billion-euro bailout from the European Union and the International Monetary Fund, the nation’s President Nicos Anastasiades agreed to shutter the nation’s 2nd largest bank, Cyprus Popular Bank, largely wiping out deposits above the insured limit of 100,000 euros. Depositors in the country’s biggest bank, Bank of Cyprus, could lose as much of 40% of their uninsured savings. “We don’t have any numbers or real data on how this will effect our lives,” says Kattou’s husband Pambos Kattos, 52, a civil engineer who will likely lose his job at bank that’s being folded. “But there will be great destruction.”
A series of capital controls introduced by lawmakers on Saturday is expected to prevent run on the country’s banks Tuesday. As of Sunday evening, the country’s ATMs were already limiting withdrawals to 120 euros a day. But while the funds from abroad will plug the country’s financial gap, the island’s banking industry is all but certain to see a dramatic deflation, starting with employees of failed bank. Some estimates put the projected loss in GDP as high as 20%. “It’s feels like a war situation,” says Anna Papaioannou, 51, an employee in the Cyprus Popular Bank’s IT department. “It’s like you have cancer and instead of treating the patient, you kill him. And then you say the problem is solved.”
Papaioannou and her husband have five children, two of whom are still in university. They are making payments on five student loans as well as on a mortgage on their house. Papaioannou had already accepted a 10% cut in salary in October and another 8% was expected in March. Last year, her husband’s job as an electrical engineer feel victim to Cyprus’ already deep recession. He spent nine months unemployed before finding work as an instructor and having to rent an apartment on the other side of the island.
This winter, to make ends meet, Papaioannou turned off the heating in her house. “At our age, in this economic situation, how can we find another job?” she asks. Adding to the uncertainty is the fate of a collective savings plan, hundreds of million euros in deposits belonging to the bank’s employees, which could be completely wiped out by the bank’s collapse. “Maybe we’ll end up without work and without savings,” says Papaioannou. ”We’ll have to ask for help outside churches or community centers.”
The crisis, which caught many on the island, by surprise, has left Cypriots with deep sense of bewilderment, bitterness and betrayal. “What was the main reason we joined the euro?” says Kattou. “It was a matter of security, to have friends to help us survive.” The students in her school, she says, have been distracted, infected by their parents stress. “I teach French, and I’ve been telling them that the French are our friends. The children are asking me, ‘Why are we learning their language, if they’re not going to help us?’ ” says Kattou. “We’re talking about 12- and 13-year-olds who no longer have a future.” The situation, she says, is like a Greek tragedy.
“In ancient Sparta, they would throw crippled children from the mountain,” she says. “We feel like we’re being thrown away because we are helpless, we are weak. In other countries, don’t they help those that need it?”
Faris is a Bloomberg Businessweek contributor.
