Cyprus Mail

Days in the twilight zone

Foreign press flocked to Cyprus to cover the crisis

By Jean Christou

MOST people remember exactly where they were and what they were doing during a major event, and even more so a traumatic one,

In modern times that was September 11, 2001 for the global community. For Cypriots it would include the 1974 Turkish invasion, the August 2005 Helios plane crash, the July 2011 Mari naval base blast and the March 2013 banking crisis.

On the morning of Saturday March 16 last year, Cypriots woke up to the news that their bank deposits were to be subjected to a haircut or, in the more apt words of one woman: “They stole our money while we were sleeping.”

For a full 13 days afterwards until banks re-opened on March 28 the entire country was in a state of suspended animation akin to the five stages of grieving – denial, anger, bargaining, depression and finally acceptance, but only because there was no other choice but to try and move on.

No amount of demonstrations, pleading or Plan Bs were going to end the EU’s demand for the restructuring of the island’s financial system, and without the troika’s money, everyone knew total collapse was imminent. Yet it all still seemed just too unreal and deep down the feeling persisted that it could never actually happen. It must be a ploy by Brussels and surely the new government would do something to prevent it.

As news began to trickle out on March 16 that all deposits, even those under the insured amount of €100,000 – an amount previously thought sacrosanct – were to be cut, people began heading for ATMs and co-ops, which were open that Saturday. It was like Cyprus had entered the twilight zone. There wasn’t exactly a bank run but at some point the co-ops were told to shut their doors, and news emerged that all electronic transfers had been frozen since the early hours.

President Nicos Anastasiades was in Brussels, for what everyone thought the previous day were simple negotiations on the much-needed bailout. No one could have imagined what was going on behind closed doors in the Belgian capital.

President Nicos Anastasiades in Brussels
President Nicos Anastasiades in Brussels

A Reuters ‘insight’ article gave an eye-opening account of how only hours before the meeting Anastasiades was having cocktails with German Chancellor Angela Merkel and asking his European buddies to make sure Cyprus got a fair deal.

“Less than 48-hours later, when the deal was finally announced by exhausted officials in the pre-dawn hours of Saturday morning, it seemed anything but,” said the report. It said Merkel’s government and EU officials were determined to make depositors – read rich Russians – pay.

When they finally announced the bailout Saturday morning, the financial officials who signed on to the deal seemed so embarrassed by the across-the board deposit levy that they spoke without mentioning it at all, the report said. One senior EU official who attended the negotiations said when he realised the outcome he wanted to vomit. Edward Sicluna, the Maltese Finance Minister who was present wrote later: “There is nothing more undignified than the sight of a bankrupt person begging for assistance.”

Then Finance Minister Michalis Sarris said afterwards: “I wish I was not the minister to do this.” Anastasiades argued that he had been caught unawares and was presented with a fait accompli. He returned to Cyprus that Saturday night to meet with party leaders. He looked weary as he entered the presidential palace. Government spokesman Christos Stylianides said Anastasiades had twice threatened to walk out of the Brussels talks.

Back in Cyprus shock had given way to anger. Political parties spoke about the “vindictive” troika “unacceptable blackmail” and the “humiliation of Cyprus”. They would never vote for this fiasco.

On the streets people gathered in coffee shops expressing their disbelief. There was no other topic of conversation. “I feel bitter and disappointed because our finance minister stated there would be no haircut but here we are,” said one 70-year old. Social websites and phones were also awash with debate about little old ladies being robbed of their meagre savings.

Employees of Cyprus' Laiki (Popular) Bank protest outside the parliament building
Employees of Cyprus’ Laiki (Popular) Bank protest outside the parliament building

Demonstrations throughout the following week blamed Merkel, depicting her with a Hitler moustache, and the lefties took to the streets to blame Anastasiades, lugging around photos of him cosying up to Merkel, despite the fact that he had inherited the mess from their great AKEL leader.

And no matter how many promises the president would make about offering new shares and future gas stakes for lost deposits, in the here and now, everyone knew that businesses and households were going to suffer from increased unemployment and wage cuts. For many, there would be no more shopping sprees, private schools, university, eating out, new homes – many even faced and are still facing homelessness – no more new cars or trips abroad. Within weeks queues at food banks and charities had lengthened, and continue to grow a year later.

The EU blamed Anastasiades for the across-the-board levy. He blamed them. In the end the blame game was moot. On Tuesday March 19, parliament threw it out as the president said they would. He spoke of another plan. People breathed a sigh of relief and launded the defiant Cypriot deputies. But Brussels had worse in store. If Cyprus didn’t stop dithering and find a way to impose a deposit levy, all emergency bank funding would be cut off by March 25th, ensuring the collapse of the banks.

Then  Finance Minister Michalis Sarris leaves the Russian Finance Ministry in Moscow on March 20, 2013
Then Finance Minister Michalis Sarris leaves the Russian Finance Ministry in Moscow on March 20, 2013

Sarris set off on a humiliating misadventure to Moscow mid-week to try and borrow emergency funds. Although Vladimir Putin had called the Cyprus deposit levy “unfair, unprofessional and dangerous”, his minions gave Sarris the cold shoulder for two days. Sarris described his meetings with senior officials as “constructive”, a polite diplomatic term that means squat.

All Sarris did manage was an extension to the existing Russian €2.5 billion loan to ease the island’s immediate debt and he left Moscow ahead of schedule looking rather sheepish.

By now cash had become king in Cyprus with the banks still closed. Businesses were finding it hard to function, Limassol port was at a standstill, petrol stations and shops were refusing credit cards, police warned people about keeping large amounts of cash, and the sale of home safes rose.

On Thursday, March 21, rumours about a wind-down of ailing Laiki Bank resulted in long queues at ATMs islandwide but the masters of denial at the central bank insisted Laiki would not be allowed to fail. This didn’t stop the bank’s employees from heading to parliament to protest.

Funnily enough the very next morning deputies, having failed to receive the central bank’s optimistic memo – adopted legislation allowing the government to split the island’s failing lenders into good and bad banks as Cyprus raced to clinch a bailout with only three days to go.

Anastasiades travelled to Brussels on a private jet sent by the European Commission for the Sunday meeting which was fraught with tension. He reportedly told troika representatives that their proposal to saddle the Bank of Cyprus with some €9 billion in ELA funding owed by Laiki effectively meant BoC’s closure in six months. “I table one proposal, you don’t accept it; I table another, same thing. What else do you want me to do?” Anastasiades was quoted as saying.

Eventually in the early hours of Monday, March 25 a draft deal was finally reached. Small depositors were saved, the bigger ones were shafted, BoC would take Laiki’s debt and what was the island’s second biggest bank would be no more. Capital controls were subsequently announced and the banks opened three days later on March 28, and despite the gaggle of foreign media ensconced in Eleftheria Square hoping for a bloodbath, there was no stampede, just little old ladies calmly clutching their bank books.

“This is what they imposed on us and we have to live with it,” was the general consensus. For how long still remains to be seen.

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