A daily bulletin of news & opinion

1 August 2011

As Cyprus becomes the newest resident of Europe’s emergency room – with its own banking trouble and political crisis – thousands have taken to gathering each night outside the presidential palace, calling on President Demetris Christofias to quit during one of the greatest tests of his career.

Tasked with securing a UN-backed peace deal and restoring trust in his government following a lethal munitions blast that claimed 13 lives and knocked out a key power station two weeks ago, it is a tipping point for Christofias. With the estimated cost of rebuilding the Cypriot economy in the region of €3bn, Christofias also needs to introduce tough austerity measures to prevent the island having to go cap in hand to the EU for bailout funds.

Many feel the president lacks the popular support needed to cut jobs and spending. It will take the economy an estimated two years to reach the 1.5 per cent GDP growth that was expected for 2011 – the blast fallout ruined Nicosia’s fiscal targets.

There is also the sticky question of a peace deal. Opposition parties are worried Christofias lacks the credibility needed to push through a painful peace deal with Turkish Cypriots. Junior coalition partner Diko pulled the rug from under Christofias’ feet last Wednesday by forcing a reshuffle, having told its ministers to quit.

“Cyprus needs a strong and convincing leader to deliver a settlement, a settlement that will be unpopular for Greek Cypriots,” says Hubert Faustmann, associate professor of international relations at the University of Nicosia. “He has become a lame duck in the negotiations because what kind of settlement can he deliver?” Faustmann said an under fire Christofias is not in a position to make concessions while Turkey’s recent stance has become more hard line – making a breakthrough unlikely.

“It’s a bad mix politically and economically and there is a loss of confidence. I’m very pessimistic; everything that can go wrong is going wrong,” he says. An impatient United Nations also wants a Cyprus solution tied up before Nicosia takes up the EU presidency in mid-2012. But the President now has more pressing problems on the home front in trying to choose a new government and saving the economy from bankruptcy.

Moody’s rating agency on Wednesday downgraded Cypriot government bond ratings in part over the economic fallout from the blast and the “increasingly fractious domestic political climate.” Only last week central bank governor Athanasios Orphanides warned that Eurozone member Cyprus could be headed for a bailout if deeper austerity measures were not adopted.

If he can survive this crisis, and save Cyprus from the abyss – many doubt that he can – it will be his greatest achievement yet.


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