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| Cypriot economic model is broken, warn financial advisers | Cypriot economic model is broken, warn financial advisers |
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| Financial advisers to the legions of wealthy foreigners who have stored billions in Cypriot banks are warning that the island's financial crisis has destroyed the country's reputation as a stable banking haven. | Financial advisers to the legions of wealthy foreigners who have stored billions in Cypriot banks are warning that the island's financial crisis has destroyed the country's reputation as a stable banking haven. |
| Professionals who have built livelihoods out of the country's offshore banking boom predicted that whatever the outcome of last-ditch rescue talks in Brussels, the Cypriot economic model is broken. Their prognosis chimes with predictions from market observers that the damage wrought on the Cypriot economy by last week's events means that the original €17bn (£14.5bn) deal drawn up by the International Monetary Fund, the European Union and the European Central Bank is insufficient. | Professionals who have built livelihoods out of the country's offshore banking boom predicted that whatever the outcome of last-ditch rescue talks in Brussels, the Cypriot economic model is broken. Their prognosis chimes with predictions from market observers that the damage wrought on the Cypriot economy by last week's events means that the original €17bn (£14.5bn) deal drawn up by the International Monetary Fund, the European Union and the European Central Bank is insufficient. |
| "Ninety-nine per cent of my clients are saying 'find a way to get my money out', in any way," said Petros Valko, a financial consultant who manages funds worth about €100m. "No matter what [the government] does now, the Cypriot economy is over. Trust is our main commodity, and it's gone." | "Ninety-nine per cent of my clients are saying 'find a way to get my money out', in any way," said Petros Valko, a financial consultant who manages funds worth about €100m. "No matter what [the government] does now, the Cypriot economy is over. Trust is our main commodity, and it's gone." |
| Crisis talks on the bailout were going down to the wire in Brussels on Sunday, with the ECB threatening to cut off the island's emergency funding – and trigger Cyprus's likely exit from the euro – if a deal is not agreed by Monday. | Crisis talks on the bailout were going down to the wire in Brussels on Sunday, with the ECB threatening to cut off the island's emergency funding – and trigger Cyprus's likely exit from the euro – if a deal is not agreed by Monday. |
| According to reports emanating from Brussels, the latest proposals would reportedly see deposits of more than €100,000 hit with a levy of up to 25%, as the Cypriot government sought to raise at least €5.8bn toward the bailout as demanded by Brussels. The haircut would hit wealthy foreigners the hardest. But the effects would spread throughout the Cypriot economy, which is overwhelmingly dependent on financial services. | According to reports emanating from Brussels, the latest proposals would reportedly see deposits of more than €100,000 hit with a levy of up to 25%, as the Cypriot government sought to raise at least €5.8bn toward the bailout as demanded by Brussels. The haircut would hit wealthy foreigners the hardest. But the effects would spread throughout the Cypriot economy, which is overwhelmingly dependent on financial services. |
| Analysts warned of widespread unemployment and plunging property prices if foreign investors withdrew en masse from the country. The Cypriot government is said to be considering imposing capital controls in an attempt to avoid a mass run on banks. It has said banks would re-open on Tuesday, but the deadline has shifted repeatedly. | Analysts warned of widespread unemployment and plunging property prices if foreign investors withdrew en masse from the country. The Cypriot government is said to be considering imposing capital controls in an attempt to avoid a mass run on banks. It has said banks would re-open on Tuesday, but the deadline has shifted repeatedly. |
| Financial advisers warned that the long-term damage to Cyprus's reputation meant the controls would simply delay the inevitable. "Even if they open, the banks will be dead," Valko said. Wealthy Russians, believed to account for nearly half of the €70bn worth of deposits in Cypriot banks, have been flying to the island nation for emergency consultations. | Financial advisers warned that the long-term damage to Cyprus's reputation meant the controls would simply delay the inevitable. "Even if they open, the banks will be dead," Valko said. Wealthy Russians, believed to account for nearly half of the €70bn worth of deposits in Cypriot banks, have been flying to the island nation for emergency consultations. |
| "The damage is done," said Demos Antoniou, CEO of Compass, a Limassol-based consultancy with a roster of foreign clients. "Now we have to see what we can save, work hard for the next few years and try to reverse this situation." He said the proposal of a deposit levy had caused serious damage to the island's reputation. "From the day they announced the possibility of a haircut, that was it," he said. However, the government could still find a way to lure foreign investors. He said: "They need to give them incentives to make them stay here. Yes, we need the Russians – but they also need us. In what other European country can they get a 10% tax rate, 0% tax on profit, plus interest on deposits. They need more incentives now. The government doesn't have a plan for this – that's the problem." | "The damage is done," said Demos Antoniou, CEO of Compass, a Limassol-based consultancy with a roster of foreign clients. "Now we have to see what we can save, work hard for the next few years and try to reverse this situation." He said the proposal of a deposit levy had caused serious damage to the island's reputation. "From the day they announced the possibility of a haircut, that was it," he said. However, the government could still find a way to lure foreign investors. He said: "They need to give them incentives to make them stay here. Yes, we need the Russians – but they also need us. In what other European country can they get a 10% tax rate, 0% tax on profit, plus interest on deposits. They need more incentives now. The government doesn't have a plan for this – that's the problem." |
| Wealthy foreign investors, mainly Russians, have flocked to Cyprus to take advantage of its low taxes and lack of scrutiny over the origin of funds. The crisis has thrown up accusations that Russians were able to launder huge amounts of money through transactions based on the island. | Wealthy foreign investors, mainly Russians, have flocked to Cyprus to take advantage of its low taxes and lack of scrutiny over the origin of funds. The crisis has thrown up accusations that Russians were able to launder huge amounts of money through transactions based on the island. |
| Banks have been shut for more than a week as the government in Nicosia struggles to agree a bailout package. Cypriots and foreign residents have queued for hours at ATMs throughout the week. By Sunday night, ATMs at Laiki, Cyprus's second biggest and most troubled bank, reportedly reduced maximum withdrawals to €100. | Banks have been shut for more than a week as the government in Nicosia struggles to agree a bailout package. Cypriots and foreign residents have queued for hours at ATMs throughout the week. By Sunday night, ATMs at Laiki, Cyprus's second biggest and most troubled bank, reportedly reduced maximum withdrawals to €100. |
| The streets of Limassol, a bustling seaside city popular with the country's Russian community, were eerily quiet on Sunday. Residents said they had begun to stock up on food and petrol as fears for the future grew. Many pointed their anger at Brussels, struggling to understand why the EU was allowing them to flounder. Calls for Cyprus to voluntarily exit the eurozone increased. Antoniou also said he supported "a solution outside the eurozone". He said: "It's like we're having a third world war, but this time it's a financial war." | The streets of Limassol, a bustling seaside city popular with the country's Russian community, were eerily quiet on Sunday. Residents said they had begun to stock up on food and petrol as fears for the future grew. Many pointed their anger at Brussels, struggling to understand why the EU was allowing them to flounder. Calls for Cyprus to voluntarily exit the eurozone increased. Antoniou also said he supported "a solution outside the eurozone". He said: "It's like we're having a third world war, but this time it's a financial war." |
| Russian leaders have been among the most critical of a proposed levy, with Vladimir Putin, the Russian president, calling the idea "unjust, unprofessional and dangerous". Cypriot efforts to win Russian aid failed last week. Its prime minister, Dmitry Medvedev, said Moscow would only offer assistance if a deal was reached with the EU. | Russian leaders have been among the most critical of a proposed levy, with Vladimir Putin, the Russian president, calling the idea "unjust, unprofessional and dangerous". Cypriot efforts to win Russian aid failed last week. Its prime minister, Dmitry Medvedev, said Moscow would only offer assistance if a deal was reached with the EU. |
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