EU: Cash-strapped Cyprus plots Russian exit from austerity

The Telegraph ^ | 10/22/2012 | Jeff Randall

[bruinbirdman]

This island, once a magnet for money, is perilously close to running out of cash. Standard & Poor's, the ratings agency, has downgraded Cyprus twice since the beginning of August, citing "deteriorating domestic credit conditions and eroding consumer and investor confidence".

With an election due in February and fears of a lurch to the left, a local café owner admitted to me that property buyers from overseas, many of them British, who in the past had been "robbed", would be foolish to rush back.

Evidence of plunging fortunes is everywhere, with billboards offering two-bedroom apartments, originally priced at €150,00 (£122,000), now €79,000. In the shopping zone close to Paphos's more expensive hotels, there are several boarded up premises, scarred with graffiti, where bars and car-hire companies used to flourish.

Things are so bad that some individuals, owed money by the government for appropriation of their land, have begun sending in the bailiffs to seize state assets. Only last week, seven vehicles owned by various departments, including the land registry, were grabbed and whisked away for auction.

The government insists that it's about to embark on talks to secure a bailout before a summit of eurozone finance ministers in mid-November. There is an expectation, perhaps unduly optimisitic, that it will be able to whistle up €10bn from the so-called troika – the International Monetary Fund, the European Commission and the European Central Bank – to rescue Cyprus's banking system, the floorboards of which collapsed when Greece went bust.

Then there is Russia. The number of Russians visiting Cyprus has tripled in three years to more than 400,000 and many do not intend to go back. The official estimate of Russian residents here is about 50,000 but double that seems nearer the mark. Aside from the appeal of an agreeable climate

[Cowboy Bob]

Until Cyprus joined the EU, Russians did not need a visa to travel to Cyprus. They lost a lot of tourists to Turkey, which dropped visa requirements for Russians last year. (Cyprus has since countered by creating a special visa program for Russians)

Another disadvantage for Cyprus is that it has become an expensive vacation destination (for Russians, at least). Holiday travel to Crete and Turkey are much less expensive.

Was in Crete in September, and most of the tourists were from Russia and Poland. Government forecasts were that tourists from Russia would increase by 25-30% next year.

[TheWriterTX]

The debt-to-GDP ratio is reaching the critical phase in a lot of EU countries.

Wouldn't be surprised if all this isn't related, somehow, to what's happening in Syria (Cyprus will be Russia's back up).

[GeronL]

“austerity” = fiscal sanity

[Cowboy Bob]

I first travelled to Cyprus almost 20 years ago. I love the country. BUT, it should never have joined the Euro Zone. Cyprus is known for 2 things - Offshore Banking and Tourism. The tourists come only 6 months out of the year.

By joining the Euro zone, they also had to give up most aspects of being an "offshore country." I believe that this has hurt Cyprus. There is a lot of Russian money in Cyprus. I wouldn't be surprised if they do some deals with the Russian government in return for financial support.