The ECB has focused attention back on Cyprus by holding this month’s meeting in Nicosia.
And while the island has outperformed Greece in implementing reforms – and is now on track to exit its €10bn euro bailout programme ahead of schedule - it still faces the threat of non-performing loans.
Helena Smith reports:
Prior to opening today’s conference, ECB chief Mario Draghi warned that while Cyprus had made “remarkable” economic progress it was “equally no time for complacency.”
Non-performing loans – at €23bn well in excess of the island’s total output of €17bn - are still seen as the biggest obstacle to financing the local economy. At close to half of banks’ total lending and still on the rise, they are also viewed as the greatest challenge to the Cypriot banking system.
Draghi urged the government to impose legislation that would reduce NPLs (nearly a third of which are owned by individual borrowers).
President Nikos Anastasiades government has drafted a foreclosure law but delayed enforcing it until an insolvency law is also passed to ensure that vulnerable borrowers - small- time entrepreneurs and home-owners – are protected. Across the board foreclosures could result in even greater financial chaos if the latter are hit.
“With the exception of the NPLs, the Anastasides administration has been very eager, very nerdish about implementing what was asked of them by creditors,” said Hubert Faustmann, associate professor of history and political science at the University of Nicosia. “While there has been some domestic resistance it has always been overcome.”
As the EU’s only bailed out state to have forced its depositors to have shared the burden of a rescue – with the infamous “bail in” of accounts worth more than €100,000 – anger towards creditor bodies like the ECB is still rife (as Wednesday’s night protests in Nicosia illustrated).
But Cyprus’ better-than-expected recovery has also shown that micro-economies are much more difficult to predict. “They can be much more influenced by events, very little can do a lot of good,” said Faustmann calling Cyprus “the north of the south.”
“People here are hard working,” he insisted, adding:
“Elite corruption, though endemic, is far less destructive than it is, say in Greece, and the mentality has many western European traits partly as a result of the British legacy albeit mixed with Mediterranean and oriental values.”