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Urgent Stock Market Message

The Sword of Damocles Still Hangs Over Cyprus

Politics / Credit Crisis 2013 Mar 31, 2013 - 09:05 PM GMT

By: Patrick_Henningsen


PATHOS – While bureaucrats and technocrats in Nicosia have been busy trying agree on an even horrible haircut than the each of the previous Troika proposals, the EU’s deadly pathogen has begun to spread to the far corners of the country, hitting the southern seaside tourist town of Pathos.

Cyprus managed to avoid the initial danger of an all out bank run and the potential for mass rioting this week, which is probably down to the fact that no Cypriot wants to see their country become a lawless banana republic in the Mediterranean. 

But that calm will not last for long if banking oligarchs continue to pressurize this economy.

Capital controls and frozen bank deposits mean that thousands of businesses are now being strangled of operating funds. It’s a very bad scene. One successful Pathos bar owner, named Nicolas, is being hit particularly hard, and told us that his story is the same as every local trader he knows.

He explained, “Our credit card merchant account was with Laiki Bank and we cannot access it anymore, so we cannot take cards. People aren’t spending money. All my suppliers are demanding cash for deliveries, and we just haven’t got enough. They’ve got our cheques in the bank but we don’t have the funds to cover them. Staff need to be paid in cash daily now. My emergency funds are frozen in another bank account and cannot be accessed for 45 days. On top of that, tourism is down, and there’s no foreign money coming in anymore. We’ll be lucky if we’re still here in 4 or 6 months time.

“The only thing which might remedy the situation is if the government impose austerity cuts on government spending”.

Listen to more of this interview here:

Day 3 Audio Highlights: Cyprus_Wipe_Out

In other words, things are likely to get much worse, as the Sword of Damocles is now hanging over the head of every Cypriot. 

PHOTO: Not quite Damocles, but local Nicosian demonstrates the concept to us in front of Bank of Cyprus.

The story of Damocles is rather poignant in more ways than one. The story goes like this…

Dionysius (II) was a fourth century B.C. tyrant of Syracuse, a city in Magna Graecia, the Greek area of southern Italy. To all appearances Dionysius was very rich and comfortable, with all the luxuries money could buy, tasteful clothing and jewelry, and delectable food. He even had court flatterers (adsentatores) to inflate his ego. One of these ingratiators was the court sycophant, Damocles. Damocles used to make comments to the king about his wealth and luxurious life. One day when Damocles complimented the tyrant on his abundance and power, Dionysius turned to Damocles and said, “If you think I’m so lucky, how would you like to try out my life?”

Damocles readily agreed, and so Dionysius ordered everything to be prepared for Damocles to experience what life as Dionysius was like. Damocles was enjoying himself immensely… until he noticed a sharp sword hovering over his head, that was suspended from the ceiling by a horse hair. This, the tyrant explained to Damocles, was what life as ruler was really like.

Damocles, alarmed, quickly revised his idea of what made up a good life, and asked to be excused. He then eagerly returned to his poorer, but safer life.”

The story of Damocles can be applied two angles here. Everyone we spoke to here on Cyprus is aware that this sword is hanging over them, suspended by threads. That is obvious to the thousands of small to medium size businesses who are all hanging in there, and barely holding on in the face of capital controls and an acute liquidity shortage. If they didn’t have sufficient cash reserves before this crisis hit, then it’s doubtful that they will be able to weather the storm indefinitely.

The deeper aspect of Damocles here, is that before joining the EU and opting into the euro single currency, Cyprus was a closed economy and could more easily manage its domestic and incoming cash. It’s currency, the Cypriot Pound, was one of the strongest in the world. It filled a gap in the international market by offering a secure and profitable offshore destination for capital investment. Why worry when everyone seemed to be doing well? Then came the Russian money, and then the housing bubble, and the euro – which turned this small island of 800,000 into a speculative free-for-all, where incoming cheap money corrupted nearly every level of Cypriot society. This period of speculative gambling based in Nicosia was transposed on top of an already existing, pre-euro layer of backhanders and fat brown envelopes.

It was a perfect storm for our Damocles. All the while, shrewd shylocks in New York, London, Berlin and their court administrators in Brussels, where watching closely, and simply waiting for someone to spring the trap. Arguably, that someone was a Dubai-backed, high-flying Greek tycoon, Andreas Vgenopoulos, who took control of Cyprus’s Laiki Bank and proceeded to attach the Cyprus banks to a sinking Greek financial system.

You can blame Vgenopoulos, or Laiki mangement, or you can blame the money laudering, or the Troika. You can even blame the corrupt politicians, but in the end, all anyone could do in the end is stand and watch its balance sheet go up in flames. and watch it sink to the bottom. Corruption in Nicosia left the Troika mafia in control of the entire country of Cyprus. Like Damocles, some older Cypriots are now longing for their old farming lives, where living off the land was part and parcel of living here.

PHOTO: The bank run never happened, partly because of capital controls.

As is always the case these days, the elite financial wars and ponzi schemes end in disaster for the average saver. The people are asked to pay for the collective losses of the elite. 

A local restaurant owner in Larnaca, Nico Petreu, told us a story which made my heart sink, and one which illustrates the Greek tragedy unfolding before our eyes here. His business is already being ravaged by an EU funded motorway project which is running along the beach front and will cut off most of his trade as a result. Eurocrats have offered no compensation. Now the banking crisis has hit like a left-hook knockout punch.

He explained, “For 29 years, I have always paid my rent on time, but this week I had to call my landlord to tell her to reduce my rent or I cannot afford to pay it. So I gave her that choice – reduce the rent or take me to court because either way, I can no longer afford it.” 

The next call could be to his daughter at university, saying he cannot afford to help finance her higher education any longer. 

These are the stories which people like Christine La Garde and Angela Merkel will never hear, even though they have the power to rectify the situation. If you still think they really care, then you are probably still in denial.

Watch the UK Column Live TV program on Tues at 1pm GMT, and visit the UK Column website for more reports from Cyprus.

Also, you can listen to daily reports this week from Cyprus at The Pete Santilli Show, M-F 12pm PST/7pm GMT.

Editor Patrick Henningsen

21st Century Wire

© 2013 Copyright Patrick Henningsen - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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