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‘Cyprus to lose 40 per cent of GDP by accepting bailout terms’

Published time: March 24, 2013 16:38

Thousands of bank employees protest outside the Finance Ministry in Nicosia March 23, 2013. (Reuters/Yannis Behrakis)

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Cyprus won’t be able to recover from the blow it’ll suffer if agrees to all of the troika’s “unprecedented” bailout terms, Cypriot economy professor, Andreas Theophanous, said an exclusive interview with RT.

Cypriot president, Nicos Anastasiades, is holding talks with the troika (EU, ECB, IMF) in the last attempt to secure €10 billion, which will save the debt-hit Mediterranean island from bankruptcy.   

Under the latest plan, a one-time levy of 20 per cent would be placed on uninsured deposits of more than €100,000 at the Bank of Cyprus, with a separate tax of 4 per cent assessed on uninsured deposits of more than €100,000 at all other banks in the country.

A professor of Political Economy at the University of Nicosia and the president of the Cyprus Center for European and International Affairs, Andreas Theophanous, believes that the shock therapy implemented by the EU in Cyprus is the wrong solution as it’ll only worsen the economic situation in the country.  

RT: A crucial meeting is underway in Brussels as the president of Cyprus is discussing the crisis with the key figures who hold the country's fate in their hands. What's your prognosis of its outcome?

AT: It’s very difficult to make a forecast. There is a political willingness by the government [of Cyprus] to reach an agreement for the bailout with the Troika, but it seems that they are making it more and more difficult with new and new demands. The fear that exists is that in case that all demands of the troika are accepted, it’ll be very difficult for this agreement to be viable in the sense that it’ll throw the country into a huge fiscal cliff, huge recession and a vicious circle. And it’ll be extremely difficult if not impossible to get out of it.   

RT: Cyprus is desperately trying to prevent business from fleeing the country, even the Archbishop of Cyprus is reportedly planning to hold talks with foreign investors. How destructive do you predict the outflow of capital could be if the measures are implemented?

AT: You see, what has happened lately was unprecedented. When they announced the measures last week it led to a big panic. I think the economic problems of Cyprus could be addressed with a gradualist approach. These shock therapies create more problems than they resolve. We think in Cyprus that there’s a huge solidarity deficit in the European Union and in the Troika, which is much higher than any fiscal deficit or public debt of any country in the European south.   
 
RT: Many people now face losing up to a fifth of their life savings. How are banks planning to restore their customers' trust after something so many view as outright robbery?

AT: This is unprecedented. Cyprus lost 25 per cent of its GDP almost two years ago when it was the haircut of the Greek debt. And there has been no compensation for that. If these ideas that are being discussed are implemented – there would be another haircut of Cyprus’ GDP, which will be around 40 per cent. It’ll be impossible, I think, to get out of such a mess. I find it very difficult for this to be viable. Even if there’s agreement, even if it goes through the parliament, I find it extremely difficult for this to be viable in the next few months to come.

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