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‘We Feel Like Crying’: Cypriots Lament ‘Terrible’ Deal

Carolin Roth, Ee Sing Wong
Monday, 25 Mar 2013 | 9:47 AM ET
A demonstrator outside the Cypriot parliament in Nicosia, Cyprus
Bloomberg/Contributor | Bloomberg | Getty Images
A demonstrator outside the Cypriot parliament in Nicosia, Cyprus

A day after Cyprus struck an 11th hour bailout deal with international creditors, economists warned of the devastating impact it would have on the Cypriot economy as ordinary Cypriots attempted to come to terms with a new reality.

"Our Cypriot GDP (gross domestic product) forecast entails a drop of just over 20 percent in real GDP by 2017. This forecast had already factored in much what was agreed, but did not account for the additional uncertainty shock generated by the past week's appalling political mess. Risks are clearly on the downside and Cyprus will in all likelihood require additional financial assistance further down the road," Societe Generale analysts wrote in a note on Monday.

(Read More: Cyprus Relief: Why the Rally May Be Short Lived)

UBS Investment Bank was similarly downbeat, saying "the country is likely to enter a deep recession caused by the shrinkage of the banking sector and severe deleveraging."

Meanwhile, the picture on Nicosia's streets was deceiving. Hundreds of teenagers and young families were leisurely walking the streets to celebrate the country's national day. A long parade flanked by cheering onlookers wound through Nicosia's streets.

Florendia, Eleni and Katherina, aged 15, told they "feel like crying". They know that their parents are worse off after the banking restructuring. "In the future, what are we going to do? My grandma was saving money for me, but now that money is gone".

The high school students say their pocket money has fallen by around 20 percent and they're no longer spending money as freely as before. Now their lunch is a cheap take out lunch.

The worst thing, they feel, is that "it's not our fault, or that of our parents. It's the politicians and the bankers who are taking our money."

(Read More: Will the Cyprus Deal Take the Euro Far?)

A local supermarket owner is unsure what the future will bring. "It's hard to say what will happen to my business. But do I think sales will fall even further? Yes, most definitely."

Others, however, are more sanguine about the deal.

Cyprus Agrees 10 Billion Euro Bailout Deal
Cyprus and its international lenders on Monday reached a last-minute rescue deal to resolve the country's financial crisis. But what are the implications for the country?

"It is not a necessarily good deal, but for us it's the best outcome. We fall under the 100,000 euros threshold, so we're happy. But some of our friends have saved more and they're obviously affected. Overall, I feel this deal will provide a better future for my daughter," Katherina, a young mom of a 10 month-old girl said.

Efi Xanthou, foreign affairs spokesperson of the Green Party, told CNBC many people do realize what this deal means. "Businesses will be laying off people, and consumers will only be buying essentials from now on. No clothes, only food. This will be a vicious cycle."

"We are waiting for the exact details of the austerity measures linked to the Troika program. But it is safe to say we will be seeing further cuts in public spending and wages. While the public sector isn't as bloated as in Greece for example, there is still a lot more fat to be trimmed," she added.

(Read More: Cyprus to Contact Troika Monday for Bailout Talks)

Chris Passarides, Economics Nobel Laureate and economic adviser to the government, told CNBC: "For Cyprus it's a terrible deal. You are taking away 50 percent of GDP, you're destroying small enterprises. Unemployment will pick up and we are not sure what the business model will be."

Cyprus' corporate tax rate is expected to go up to 12.5 percent from from 10 percent currently. That compares with a Russian corporate tax rate of 30 percent.

"Cypriots should forget about banks and attracting big deposits. The offshore banking sector is broken for the time being. The future will continue to be on business services, but it won't focus on finances," he said, adding however that "our corporate tax levels are still very competitive."

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