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Cypriot Middle Class Feels Betrayed by Europe Union Cypriots Feel Betrayed by European Union
(about 5 hours later)
NICOSIA — For the past 10 years, Charalambos Alexandrou was one of many Cypriots who helped build his country into a modern Mediterranean paradise. NICOSIA, Cyprus — Like a lot of Cypriots, Charalambos Alexandrou helped build his country into a modern Mediterranean paradise.
As money flowed into the island’s banks after Cyprus joined the European Union in 2004, and the country embarked on an urban boom, he landed a lucrative job in construction building roofs, at first for sleek homes and shops, and then for the manicured mansions that took over lush land formerly rich in olive groves and grape vines. Those trends only accelerated after the country was admitted into the euro currency union in 2008. As money flowed into the island’s banks after Cyprus joined the European Union in 2004, the country embarked on a construction boom. He landed a lucrative roofing job, at first for sleek homes and shops, and then for the mansions that took over olive groves and vineyards. The demand for his skills only accelerated after the country was admitted into the euro currency union in 2008.
But in the last two weeks, he has watched the foundations of his country buckle under a banking collapse. The severe terms of the country’s €10 billion, or $13 billion, international bailout have tied up everyone’s cash, forced huge losses on the biggest savers and are expected to hasten a deep recession that might take years to overcome. But in the last two weeks, he has watched his finances slide as the foundations of his country crumble during the collapse of the banking system. The severe terms of the country’s 10 billion euro ($13 billion) international bailout have tied up everyone’s cash, forced huge losses on the strictest savers and are expected to hasten a deep recession that may take years to overcome.
Mr. Alexandrou, 30, says he understands that the Cyprus crisis was brought on by bank mismanagement and even financial corruption. What most pains him and many others here, though, is the feeling that Cypriot solidarity with the European Union has been shattered by international finance officials willing to let their country’s 860,000 citizens suffer for the sins of a powerful few. Mr. Alexandrou, 30, says he understands that the crisis in Cyprus was brought on by bank mismanagement and even financial corruption.
Cyprus, they say, is no backward poor cousin to the European Union. And neither do they consider it a financial casino. Instead, it is a country with a small, but remarkably multilingual, solidly educated and until now comfortably middle-class population — people who consider themselves precisely the type of Europeans the rest of the Union should be proud to have anchor its border with the Middle East. That is why many Cypriots now feel such shock and anger at what they consider their economic excommunication from the European project. What most pains him and many others here, though, is that central bankers and other international financial officials have, by letting their country’s 860,000 citizens suffer for the sins of a powerful few, shattered Cyprus’s solidarity with the European Union.
Cyprus is no poor cousin to the European Union, they say. Instead, it is a country with a small, but remarkably multilingual, solidly educated and until now comfortably middle-class population — people who consider themselves precisely the type of Europeans the rest of the union should be proud to have anchor its border with the Middle East.
Many Cypriots now feel great shock and anger at what they consider their economic excommunication.
“Not everyone here is Russian, or making money illegally, or laundering money,” Mr. Alexandrou said. “Most of us are normal people living normal lives.”“Not everyone here is Russian, or making money illegally, or laundering money,” Mr. Alexandrou said. “Most of us are normal people living normal lives.”
He sat, face grim, with his wife, Aliki, and their energetic 18-month-old son, Alexandros, in the living room of their modern white house on the outskirts of Nicosia. “Now we see that nothing good has come from European solidarity,” he said.He sat, face grim, with his wife, Aliki, and their energetic 18-month-old son, Alexandros, in the living room of their modern white house on the outskirts of Nicosia. “Now we see that nothing good has come from European solidarity,” he said.
For Cypriots, joining the European Union and adopting the euro were signature achievements. After decades of internal strife and foreign occupation, first by British forces then by Turkey in the divided north, Cyprus saw acceptance into the European family as a promise of newfound stability and the chance to forge a more modern economy. For Cypriots, joining the European Union and adopting the euro were significant achievements. After decades of internal strife and foreign occupation, Cyprus regarded acceptance into the European family as a promise of stability and the chance to forge a more modern economy.
During the boom times, Mr. Alexandrou acknowledged, Cyprus, like many European countries, lived above its means. But while it is time for the country to pay for its follies, he said, “there is the sense that no one in Europe really cares what happens to us.” During the boom times, Mr. Alexandrou acknowledged, Cyprus, like many European countries, lived beyond its means. But while it is time for the country to pay for its follies, he said, “there is the sense that no one in Europe really cares what happens to us.”
Some of their fellow Cypriots have vented their resentment in protests, shouting anti-German epithets and burning the E.U. flag. Cypriots are relatively stoic compared to their more fiery brethren in bailed-out Greece, but there is deep-seated anger over the perception of Europe’s kicking Cyprus while it is down. Some of his fellow Cypriots have vented their resentment in protests, shouting anti-German epithets and burning the European Union flag. Cypriots are relatively stoic compared with their more fiery brethren in bailed-out Greece, but there is deep-seated anger over the perception that Europe is kicking Cyprus while it is down.
“We made sacrifices to integrate Cyprus into the great European family,” Antigoni Papadopoulou, a member of Parliament, said last week as Cyprus scrambled to negotiate its bailout. But “there is a real lack of European solidarity,” she said. “We made sacrifices to integrate Cyprus into the great European family,” Antigoni Papadopoulou, a member of Parliament, said last week as Cyprus tried to negotiate its bailout. But “there is a real lack of European solidarity,” she said.
With the encouragement and subsidies of Brussels, Cyprus moved away from a broad-based, heavily agricultural economy toward an emphasis on services supporting business, finance and communications. Manufacturing was also allowed to lapse, with locally made goods — whether shoes or pharmaceuticals — all but disappearing. With encouragement and subsidies from Brussels, Cyprus moved away from an agricultural economy toward an emphasis on services that support business, finance and communications. Manufacturing was also allowed to lapse, with locally made goods — whether shoes or pharmaceuticals — all but disappearing.
Cyprus’s leaders seized the opportunity to recast the island as a strategic hub at the crossroads of Europe, the Middle East and Asia. Their ambition was to emulate the wealthy, discreet European money havens of Luxembourg and Switzerland, while securing a comfortable way of life for their people. Cyprus’s leaders seized the opportunity to recast the island as a strategic hub at the crossroads of Europe, the Middle East and Asia. Their ambition was to emulate the wealthy, discreet European money havens of Luxembourg and Switzerland, thus securing a comfortable way of life for their people.
Financial firms and corporations — many of them shell companies — set up shop, or mailing addresses at least. The big draws were an ultralow corporate tax rate of 10 percent (as part of the bailout, it has been raised to 12.5 percent) and stable rule of law based on the U.K. legal system, a legacy of decades of British oversight. Financial firms and corporations — many of them shell companies — set up shop, or at least mailing addresses. The big draws were an ultralow corporate tax rate of 10 percent and a stable rule of law based on the British legal system.
That drew big money to Cyprus, which grew more creative about how to handle it. Myriad accounting firms set up shop here. Trusts flourished, allowing depositors to place money with a lawyer, who in turn put the money into a bank account under a different name. And as is now widely understood, hordes of cash — as much as one-third of all bank deposits here — came from Russians seeking a haven from the prospect of the property seizures all too common back home. That drew big money to Cyprus, which grew more creative about how to handle it. Accounting firms set up shop here. Trusts flourished, allowing depositors to place money with a lawyer, who in turn put the money into a bank account under a different name. And as is now widely understood, hordes of cash — as much as one-third of all bank deposits here — came from Russians seeking a haven from the prospect of the property seizures all too common back home.
At the entrance of the airport in the nearby coastal city of Limassol, in a testament to wealth and power, a sign reading “Heads of State, Executive Aircraft” was erected to direct chauffeurs through a terminal crowded with passengers arriving on private jets. At the entrance of the airport in the nearby coastal city of Limassol is a testament to wealth and power: a sign reading “Heads of State, Executive Aircraft” was erected to direct chauffeurs through a terminal crowded with passengers arriving on private jets.
But the rank and file benefited, too. To serve this new economy, people pursued higher education. More than half of adult Cypriots now hold graduate degrees in fields including finance, law and accounting, as well as medicine and teaching. Many people, especially the young, speak two or more languages, a further draw for an international clientele.But the rank and file benefited, too. To serve this new economy, people pursued higher education. More than half of adult Cypriots now hold graduate degrees in fields including finance, law and accounting, as well as medicine and teaching. Many people, especially the young, speak two or more languages, a further draw for an international clientele.
But the easy money was maybe too easy. Mr. Alexandrou, using currency terms from the British era, recalls the flush times after his country joined the European Union. “You would go to the bank with a monthly salary of £400, and the bank would give you a £20,000 loan, plus a £5,000 credit card as a bonus,” Mr. Alexandrou recalled. “We lived with money that was not ours.”But the easy money was maybe too easy. Mr. Alexandrou, using currency terms from the British era, recalls the flush times after his country joined the European Union. “You would go to the bank with a monthly salary of £400, and the bank would give you a £20,000 loan, plus a £5,000 credit card as a bonus,” Mr. Alexandrou recalled. “We lived with money that was not ours.”
After Cyprus joined the euro union in 2008, upward mobility started looking more like a bubble daring to be burst. The easily convertible currency attracted even more people and money from Russia, Britain and elsewhere in Europe, further fueling a construction boom. Modern office buildings sprang up, as did commodious private homes, many with spacious garages to house luxury cars. After Cyprus joined the euro union in 2008, upward mobility started looking more like a bubble waiting to burst. The easily convertible currency attracted even more people and money from Russia, Britain and elsewhere in Europe, further feeding a construction boom. Modern office buildings sprang up, as did commodious private homes, many with spacious garages to house luxury cars.
Mr. Alexandrou and the friends he grew up with could scarcely believe the transformation. As his roof-building business took off, so did his income — though he declines to discuss specifics.Mr. Alexandrou and the friends he grew up with could scarcely believe the transformation. As his roof-building business took off, so did his income — though he declines to discuss specifics.
The money was enough to buy expensive furniture for a home that his wife’s father, following Greek custom, built for the couple upon their marriage. The dowry took the form of a sleek, three-bedroom home with clean lines and white marble floors to go with the white walls, white curtains and white furnishings.The money was enough to buy expensive furniture for a home that his wife’s father, following Greek custom, built for the couple upon their marriage. The dowry took the form of a sleek, three-bedroom home with clean lines and white marble floors to go with the white walls, white curtains and white furnishings.
Like almost everyone around him, Mr. Alexandrou still made a point of putting money aside and dutifully saving it at Bank of Cyprus, the country’s largest. Like almost everyone around him, Mr. Alexandrou still made a point of putting money aside and dutifully saving it at the Bank of Cyprus, the country’s largest bank.
But then came 2010, when Europe’s debt crisis came to full boil, particularly in Greece. Construction work became scarce as Cypriot banks, burdened by soured debt from risky loans they had made in Greece and Cyprus, cut off new lending.But then came 2010, when Europe’s debt crisis came to full boil, particularly in Greece. Construction work became scarce as Cypriot banks, burdened by soured debt from risky loans they had made in Greece and Cyprus, cut off new lending.
The knockout blow, though, was the huge losses Cypriot banks incurred from their holdings of high-yielding Greek government bonds, which took big losses as part of the international bailout of Greece. The knockout blow, though, was the huge losses Cypriot banks incurred from their holdings of high-yielding Greek government bonds as part of the international bailout of Greece.
As Cyprus edged toward requesting a bailout late last year from the so-called troika — the European Central Bank, the European Commission and the International Monetary Fund — suspicions took root in Germany and other northern euro zone countries that taxpayer money could wind up salvaging Cypriot banks and preserving funds of questionable origin, especially from Russia. As Cyprus edged toward requesting a bailout late last year from the so-called troika — the European Central Bank, the European Commission and the International Monetary Fund — suspicions took root in Germany and other northern euro zone countries that taxpayer money could wind up salvaging Cypriot banks and preserving money of questionable origin, especially from Russia.
Bank of Cyprus and Laiki Bank, which are now being consolidated as part of the bailout, were renowned among locals in Cyprus for allowing people to deposit stacks of cash without question. Other locals said they frequently witnessed people arriving on long flights from the Middle East and Russia, carrying only black bags with combination locks. The Bank of Cyprus and Laiki Bank, which are now being consolidated as part of the bailout, were renowned among locals in Cyprus for allowing people to deposit stacks of cash without question. Other locals said they frequently saw people arriving on long flights from the Middle East and Russia, carrying only black bags with combination locks.
And then, even the home-building business came under suspicion: was it simply another way to invest laundered money?And then, even the home-building business came under suspicion: was it simply another way to invest laundered money?
Whatever the truth, “all I know is that just over 15 days ago we woke up and suddenly everyone was poor in Cyprus,” Mr. Alexandrou said. He was referring to the sudden closure of the nation’s banks, which even after reopening are subject to tight controls on withdrawals and transfers that will last for weeks, if not longer. Whatever the truth, “all I know is that just over 15 days ago we woke up and suddenly everyone was poor in Cyprus,” Mr. Alexandrou said. He was referring to the sudden closure of the nation’s banks. Even after reopening, they are subject to tight controls on withdrawals and transfers that will last for weeks, if not longer.
And with losses of up to 60 percent being imposed on deposit accounts above €100,000 at the Bank of Cyprus, he said even many of his friends — not just Russian oligarchs — were losing big portions of savings they so diligently tucked away during the good years. And with losses of up to 60 percent being imposed on deposit accounts above 100,000 euros at the Bank of Cyprus, he said, even many of his friends — not just Russian oligarchs — were losing big portions of savings they so diligently tucked away during the good years.
Meanwhile, there is much less work for him and for his wife, whose job at a ceramics company is also dependent on construction industry. Mr. Alexandrou gestured toward his young son, cheerfully spilling a box of colored toys onto the floor. And there is much less work for him and for his wife, whose job at a ceramics company is also dependent on the construction industry. Mr. Alexandrou gestured toward his young son, cheerfully spilling a box of colorful toys onto the floor.
“I’m concerned,” Mr. Alexandrou said, “about how I’ll raise him in coming years.”“I’m concerned,” Mr. Alexandrou said, “about how I’ll raise him in coming years.”