Erstellt am: 14. 3. 2014 - 18:10 Uhr

Reality Check Special

A difficult year in the life of Cyprus: An island that remains in “intensive care”.

Imagine you’ve been saving for years to buy a house or flat or you've put aside some money to invest in a business of your own. You’ve now got enough sitting in the bank but suddenly you’re told, through no fault of your own, you have to lose one third of your savings. Welcome to Cyprus in March 2013.

The county was awarded a 10 billion euro bailout. In return, Cyprus agreed to close the country's second-largest bank, the Laiki Bank. If you had uninsured deposits in the largest bank, the Bank of Cyprus, you would receive a new 40% tax demand.

The 10 billion euro bailout to Cyprus was relatively small, compared to the money made available to Ireland or even Portugal. However, with Cyprus, the solution sought was quite unique. Lenders in the form of the so-called Troika: the European Commission, The International Monetary Fund and The European Central Bank were set on punishing a whole population (or individuals who had money in Cypriot banks) for the mistakes of the local banks. To be more specific, it seemed the real targets were the many Russian investors who had been enjoying the impossibly promised high interest rates in their offshore Cypriot accounts.

One year on, I wanted to know how things are now. After all, 12 months is a long time in the life of any turbulent economic or political event. Is 2014 giving way to shoots of a recovery? Other EU countries had received bailouts and some had deeper financial problems. In December last year for example, Ireland announced it had successfully exited its bailout programme.

I spoke with our correspondent Nathan Morely who has lived in Nicosia for many years. He told me:

The economy is still looking grim. Things are getting a little worse one year on since now we are starting to feel the impact of being a country that is technically bankrupt and in debt and paying for this huge bailout. Unemployment has gone up; we have seen lots of businesses going under. The line the government is taking is that things are being repaired. But we are now seeing I think what Greece saw a year after they got their bailout; that’s when we started to see unrest and strikes and those whose jobs were directly affected coming out onto the streets.

The problem essentially revolves around the health of the remaining large bank, the Bank of Cyprus. It absorbed all of the loans of the Laika Bank and therefore its own exposure to the fate of the Cypriot economy was suddenly twice as large. The property market is still falling so the debts owed by this bank grow even larger. And the money that the bank is lending out is much greater than the amount in its accounts by savers. The missing money that’s essentially keeping the bank afloat appears to be the bailout money, but the bailout money was provided for emergency liquidity ie. life support. The Economist Newspaper put things in context in a recent article: even though the economy has been hurt a bit less than expected, it remains in intensive care.

The answer could be staring Cyprus in the face, but that solution seems as far away as it was 40 years ago. Cyprus remains divided between the Greek south and the Turkish north. There is a border and a buffer zone between the two entities; two governments, two systems and minimal cooperation. I spoke with Ahmet Sözen who is Professor of Political Science and International Relations at the Eastern Mediterranean University, at Famagusta, in North Cyprus and he told me:

There is the discovery of very rich hydo-carbons in the Eastern Mediterranean where stable utilization of that requires the solution of the Cyprus problem.

In fact it was reported recently that approximately 3 billion barrels of oil potential lie in waters between Cyprus and Israel and there’s four trillion cubic feet of natural gas potential around Cyprus. If the drills could start pumping much of that, both northern and southern Cyprus would become oil rich and a united island could come out of intensive care and book itself into the 5-star luxury suite.

Reality Check: An island still in intensive care

Hear the Reality Check Special again, the programme was broadcast on Saturday at 12 midday on FM4.