For Cyprus, painful cuts follow ‘heart attack’ to the economy
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It wasn’t written in stone, but odds were pretty high some kind of deal on Cyprus was going to get worked out this weekend. And lo and behold, it did. One big bank will be shut down. Big depositors will take in on the chin. And, economic life in Cyprus will likely get worse before it gets better.
Faisal Islam is the economics editor for the U.K.’s Channel 4. We reached him in the capital, Nicosia. After 13 years covering European economies, Islam says he’s stunned at the turn in the Cypriot economy over the past eight days.
“Never in my life would I ever have expected to witness the types of things we’re seeing in a kind of Western European economy,” Islam says. “You’re talking a return to a cash economy, but without any cash.”
Cyprus clamped down on how much cash could be withdrawn. As of today, it was down to 100 euros, which made most spending impossible.
“What we had over the past week was a heart attack to the economy,” Islam says.
Cypriots are angry and bewildered. And while the measures discussed in the bailout deal — spending cuts and tax hikes — address some underlying problems that led to the crisis, they don’t take into account the economic shock of the past week.
“All the equations that the IMF and the EU calculated the bailout on seem to be calculated on numbers that are completely irrelevant now,” according to Islam.