Eleven years ago, Cyprus was all over the front pages: it had decreed the first corralito of the euro countries. Since then, the Mediterranean island, a member of the EU since 2004, has only appeared in the business press a couple of times, and the mantra goes: “If there is no news, it is good news.” During those frenetic weeks that put the strength of the euro zone in jeopardy, the Cypriot Nobel Prize winner in Economics, Christopher Pissarides, was very critical of the way the crisis was resolved – a huge write-off of the deposits of the most affected banks, in a clearly oversized sector and very exposed to the Greek crisis – but he still expressed hope for the future of the island. During an interview with this journalist in his office at the University of Cyprus, he stood up and pointed out the window to the Mesaoria plain, at the foot of the Pentadactyl Mountains: “When Turkey invaded the northern part of the country in 1974, the country was in a state of great danger, and … [de Chipre]took over the country’s agricultural plain. We thought the Cypriot economy was gone, but we turned to the financial sector and tourism. Now we will find other sectors.” Over the past 10 years, Cyprus’s economy has grown at an average of almost 4% a year, while Greece – which also suffered a corralito and, although it did not apply haircuts on deposits, had to approve much harsher austerity measures – barely exceeds 1% a year. Cypriot per capita income is now 12% higher than its pre-financial crisis peak; Greece’s is still 15% lower. “Cyprus’ economy has proven to be incredibly resilient,” explains Fiona Mullen, director of the consultancy Sapienta Economics: “Obviously, being a small country helps. But I have a theory that it also has to do with a certain survival instinct developed because Cyprus has been invaded and razed many times over the past 1,000 years, most recently by Turkey. So they have this way of thinking about solutions to recover quickly from disasters, even though some of the strategies they adopt are not the best for their reputation.”
Foreign investment
One of the solutions chosen by the government of conservative Nicos Anastasiadis was to attract foreign investors in exchange for granting them Cypriot citizenship (and with it an EU passport). To do so, it reduced the necessary investment from 25 to 2.5 million euros, including a minimum of 500,000 euros for real estate investment. This boosted the construction sector and legal and financial services. But, as several journalistic investigations would later reveal, the more than 6,500 passports granted through this system were a sieve for shady businessmen convicted of corruption and money laundering, with mafia ties or linked to authoritarian governments in Russia, China and Saudi Arabia, among others. In addition, it was revealed that several Cypriot politicians had made money by “selling” these passports. President Anastasiadis’ own family law firm helped make the island a haven for Kremlin-friendly Russian oligarchs, although European sanctions have reduced its influence, forced the island’s third bank – owned by Russia – to close down and caused part of the Russian community to move to northern Cyprus under Turkish control. Brexit, the Russian invasion of Ukraine and the Israeli invasion of Gaza have also affected the main groups of tourists visiting the island, although this has been compensated by attracting other markets (Germany, Austria, France, Poland). But, in addition, “the economic structure of the island is beginning to change,” explains Mullen: “The financial services sector has been weakening for two or three years and, instead, the information and communications sector has emerged strongly.” It is a mix of digital nomads; programmers and designers from Russia, Ukraine and Belarus who have escaped the situation in their countries and incentives for technology companies to set up on the island.Here you can consult the latest Letters from the correspondentFollow all the information on Economy and Business on Facebook and Xor in our weekly newsletter