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Cypriot fears over Greece’s possible return to drachma

By George Georgakopoulos

NICOSIA - Eurozone banknotes might soon have the Greek word for “euro” exclusively thanks to Cyprus’s membership in the Economic and Monetary Union if fears of a Greek exit from the common currency bloc materialize. And while Greek political parties are considering such an option from different viewpoints, this constitutes a universal worry for Cypriots, who stand to lose much from a Greek exit.

“That would be most terrible. We do not even want to contemplate such a possibility, it would be disastrous for both Greece and Cyprus,” Marios Tsiakkis, deputy general secretary at the Cyprus Chamber of Commerce and Industry, admitted to Kathimerini. “As long as the situation in Greece does not clear up, the Cypriot economy will be cringing.”

Earlier this month Finance Minister Vassos Shiarly said that “the consequences of a Greek exit would be unpredictable,” and that “as far as we in Cyprus are concerned, this is particularly worrying due to the special relationship in the Greek area.”

Besides the obvious impact on the political front -- as Greece’s say in the European Union will be dramatically reduced if it becomes the first country to drop out of the eurozone after forfeiting its agreement with its international creditors -- a Greek exit would have multiple consequences on the Cypriot economy. The current steady flow of Greeks going to Cyprus in search of a job with a high salary will surge if this country reverts to the drachma. Greek exports will suddenly become far more competitive due to the likely devaluation of the new currency, while Greek holiday destinations will become far more attractive to foreigners than Cyprus, unless of course unrest grows in Greece after a eurozone exit. “The Greek tourism flow to Cyprus will also drop significantly,” explained Tsiakkis.

Cypriots are particularly worried about the competitiveness of their products in the Greek market should Athens revert to the drachma, as they will likely lose a considerable portion of the brisk trade between the two Greek-speaking countries.

“In 2011 Greece actually saw its imports from Cyprus grow compared to 2010, thereby becoming the first market for Cypriot products, ahead of Germany and the United Kingdom,” Costas Shekkeris, head of the Commerce Ministry’s Industrial Products Export Department, told Kathimerini. Indeed, official figures from the ministry in Nicosia show that exports to Greece soared by 33 percent last year, climbing to 84.3 million euros from 63.2 million in 2010, in the midst of a major drop in consumption in Greece.

One might guess that Greeks have turned to Cypriot imports instead of those from other European countries out of patriotism, as people also associate Cypriot products with the unofficial “Buy Greek” campaign which has been winning over consumers for a couple of years now. However, the commercial counselor of the Cypriot Embassy in Athens, Loucas Symeonides, attributes the growth to “the undoubted quality of Cypriot products that is increasingly recognized,” as he told Kathimerini.

The impact of the Greek crisis has actually become a bone of contention in domestic Cypriot politics, with the government suggesting that the ills of the island’s economy are due to the excessive exposure of Cypriot banks to Greek state bonds and loans to Greek clients, which were not sufficiently monitored by the Central Bank of Cyprus, while the opposition as well as a significant number of market figures place a major part of the blame for that exposure on former Finance Minister Charilaos Stavrakis and his policies.

Either way, it is clear that the Cypriot credit system is hugely reliant on Greek prosperity -- and Cypriot lenders constitute the backbone of the island’s economy. “Bear in mind that the Cypriot banks’ turnover amounts to seven times the Cypriot gross domestic product,” said Costas Christofides, assistant director general of the Cyprus Employers and Industrialists Federation (OEB).

The three main lenders on Cyprus suffered losses of more than 3.4 billion euros between them due to the Greek debt restructuring, as Bank of Cyprus saw 1.32 billion disappear, Cyprus Popular Bank (Laiki) 1.97 billion and Hellenic Bank 110 million, and those figures don’t include the exposure to consumer and corporate loans in Greece or the drop in stock value that Athens-listed Bank of Cyprus and Popular Bank have suffered -- hence the law passed last week in Nicosia ensuring the state’s guarantee for the local banks’ recapitalization.

When the European Union agreed to accept Cyprus as a new member in 2004, then Greek Prime Minister Costas Simitis clumsily used a historically charged term to hail the event, saying in Nicosia, “We have finally achieved Enosis,” the latter being the 20th-century movement against British colonial rule and for a Cypriot union with Greece. Just eight years on, Greece risks leaving Cyprus alone in the eurozone. Could it be the “Enosis” jinx again?

ekathimerini.com , Wednesday May 23, 2012 (23:25)  
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