A thought about Cyprus

North Cyprus doesn\’t have a banking problem.

The rest of Cyprus has a very large banking problem.

North Cyprus isn\’t in the euro.

The rest of Cyprus is in the euro. And the EU.

Sounds like we\’ve found our natural experiment to judge the effect of being in the EU/euro. It\’s not an experiment that leaves the EU/euro looking good really, is it?

19 thoughts on “A thought about Cyprus”

  1. So Much for Subtlety

    There is another experiment we can try – give it back to the Turks. See if they can run it any better than the Greek Cypriots.

    Should be entertaining either way.

  2. Northern Cyprus uses the Turkish Lira, and uses the Turkish banking system, Turkish payments system, and Turkish bank regulation. If Northern Cyprus had a crisis, the option of declaring bankruptcy and devaluing the currency would not there, because Northern Cyprus is a member of a different currency union.

    In practice, though, Northern Cyprus is in a fiscal union as well as a monetary union with Turkey – in many practical ways it is part of Turkey – so this isn’t going to happen except as part of a larger Turkish crisis, which is not impossible.

    Interestingly enough, though, one way in which Northern Cyprus is not part of Turkeys is immigration policy. Russians do not need a visa to visit Turkey proper, but they do need one to visit Northern Cyprus. Russian residents are Russian money are not especially welcome there, as the Russians are culturally a bit too close to the Greeks. (If you are British, you are welcome to go there, buy property, gain permanent residency and even citizenship without much difficulty). So banks in Northern Cyprus are not full of Russian money as in the south.

  3. [Oh fuck, is it at it again?]

    North Cyprus doesnt have a banking problem.

    The rest of Cyprus has a very large banking problem.

    North Cyprus sheltered Asil Nadir when he was on the run for years.

    The rest of Cyprus did not shelter Asil Nadir. Nor did the EU.

    QED, sheltering Asil Nadir prevents banking crises.

  4. Dave wins at correlation poker.

    It’s also worth noting that Northern Cypriots earn 25% less than Greek Cypriots. Far better to live in a country which has booms and crises than a country which has neither.

  5. > Far better to live in a country which has booms and crises than a country which has neither.

    Usually. But it does depends on how big those crises are.

  6. I think it’s a bit hard to say how rich Greek Cyrpus is, and what people earn right now, given that some of their money has just been confiscated, and their economy has been bubble and Russian money driven to the extent that it has. What exactly what they will be doing and what will be there this time next year is rather hard to say.

  7. This is a bit of a cheap-shot post, and it misses.

    Shurely Cyprus’s banking problem is the vast banking sector pumped up by dodgy Russian money. Presumably that money preferred Euro-Cyprus, either because the pols/banks were more corrupt, or because they preferred to dump their money in “safer” Euro’s.

  8. Essentially the Greek Cypriots have the same problem as Iceland with an bust, but disproportionately large banking sector.

    Unlike Iceland they cannot choose the obvious and correct solution to the problem, specifically allow the banks to collapse provide the depositor protection by borrowing or printing money and let the currency find it’s own level afterwards.

    Since Cyprus (in reality just the Greek bit of it), is part of both the EU and the Eurozone most of the controls of their economy have been effectively devolved to the EU.

    Thus when Germany says “Jump”, Cyprus can only argue about how high.

  9. William: neither. It was because Northern Cyprus refused to give residency permits to Russians because they were European-ish Orthodox-ish and Christian-ish, and hence a bit too close to Greek for their liking.

    (mainland Turkey is close to Russia and happy to give Russians visas, but they’re among the few groups banned from the “internal” flight onwards)

  10. The UK Sovereign Bases of Akrotiri and Dhekelia are also outside of the EU and presumably do not have a banking crisis (although they do use the Euro).

    Interestingly, Cyprus is one of the few islands in the world to be split into more than two sovereign areas (along with Borneo; a tiny island on the Moselle split between France, Luxembourg and Germany; and a massive island in South America defined by the Orinoco, Casiquiare, Negro and Amazon rivers and the Atlantic Ocean split between Venezuela, Guyana, Suriname, French Guiana and Brazil)

  11. The bank branches in the SBA are the standard southern Cypriot banks. Apart from the J1 Paymaster, who isn’t really a bank, I’m not aware of any SBA-based financial organisation.

  12. William: I don’t think the Russian money was much of a problem – after all it was real money, only the provenance was dodgy. It was more that the banks held a load of Greek government debt and got nuked by the “haircut”.

  13. So Much for Subtlety

    john b – “Far better to live in a country which has booms and crises than a country which has neither.”

    You mean far better to live in a country that has economic growth – even if the pace varies wildly – than in a country that does not? Communist countries had booms and crises. So do a lot of Third World nations. Coffee Republics like Brazil used to be famous for their problems when the coffee crop failed. By comparison living in a stable rich country like Switzerland is a pleasure.

  14. It was because Northern Cyprus refused to give residency permits to Russians because they were European-ish Orthodox-ish and Christian-ish, and hence a bit too close to Greek for their liking.

    Pretty much entirely the Orthodox-ish part. Northern Cyprus has long been happy to give residency permits to the British, and they are at least Christian-ish and European-ish. I think there is a bit of legal strategy in there. If any kind of settlement between the two halves of Cyprus ever occurs, the biggest issue to resolve will be the property claims of the Greeks Cypriots who were driven from their homes in 1974, and their descendants. A significant number of British people insisting that houses in Northern Cyprus belong to them may strengthen the forces in favour of giving greater respect to post-1974 title issued by the Turkish Cyprus authorities. That’s likely the idea, anyway.

    The UK Sovereign Bases of Akrotiri and Dhekelia are also outside of the EU and presumably do not have a banking crisis (although they do use the Euro).

    People who live and work in them do their banking with the local banks, and a getting the same haircut as everyone else who bank with the banks though. The exception is the British government has said it will compensate military personnel and associated civil servants. I suspect if you are someone who merely works for the British forces in a minor capacity or you own a shop or a pub in the Sovereign Base Areas, you are still screwed. Also, there are a fair few people (farmers, mainly) who live and work in the Sovereign Base Areas because their families happened to be there when the SBAs were declared. I suspect they are screwed like everyone else, too.

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