Big Trouble in Little Cyprus in 2013

For Cyprus, 2013 was the year it joined the Crisis Club in Europe, along with Greece, Italy, Portugal, and Spain, in needing either a bailout or financial help disguised as one.

The fiscal woes immediately undermined newly-elected President Nicos Anastasiades who had campaigned against the idea that private bank accounts could be seized to help pay for the rescue aid.

After some protesting, he succumbed to pressure from the Troika and accepted a 10 billion euro ($13.67 billion rescue package) but the conditions included the government coming up with 13 billion euros ($17 billion) in revenues and austerity.

That led to a raid on depositors with more than 100,000 euros who lost 47.5 percent of their money as protests proved fruitless, just as they have in Greece for more than 3½ years.

“This is a challenging program that will require great efforts from the Cypriot population,” Christine Lagarde, the IMF’s Managing Director said in an understatement.

Lagarde said Cyprus needed to make substantial spending cuts “to put debt on a firmly downward path,” including in areas like social welfare programs. But she said the plan sought to be evenhanded.

Cyprus was pushed into near-insolvency when its state banks suffered 4.5 billion euros ($5.75 billion) in losses in its holdings in Greek bonds that were devalued by 74 percent and in bad loans to Greek businesses that failed during that country’s crushing economic crisis.

The government imposed capital controls that were supposed to be quickly lifted but were still in place by year’s end, limiting depositors to only 300 euros per day ($410) per day withdrawals and businesses were strapped with similar restrictions if more lenient.

In November, former president Glafcos Clerides, who ushered the country into the EU but couldn’t convince his countrymen to accept compromise and work with Turkish Cypriots who unlawfully occupied the northern third of the island for reunification, died at 94.

And so the same problem beset Anastasiades, who had only one sit-down dinner with his Turkish counterpart, Dervis Eroglu before declaring the Turks were intransigent and the negotiations over.