Financial advisers to the legions of wealthy foreigners with bank accounts in Cyprus
are under orders to withdraw their funds any way they can.
Professionals who have built livelihoods out of the country's offshore banking boom predicted that whatever the outcome of last-ditch rescue talks in Brussels, the Cypriot economic model is broken.
"Ninety-nine per cent of my clients are saying 'find a way to get my money out', in any way," said Petros Valko, a financial consultant who manages funds worth about €100m. "No matter what [the government] does now, the Cypriot economy is over. Trust is our main commodity, and it's gone."
"The damage is done," said Demos Antoniou, CEO of Compass, a Limassol-based consultancy with a roster of foreign clients. "Now we have to see what we can save, work hard for the next few years and try to reverse this situation." He said the proposal of a deposit levy had caused serious damage to the island's reputation. "From the day they announced the possibility of a haircut, that was it," he said. However, the government could still find a way to lure foreign investors. He said: "They need to give them incentives to make them stay here. Yes, we need the Russians – but they also need us. In what other European country can they get a 10% tax rate, 0% tax on profit, plus interest on deposits. They need more incentives now. The government doesn't have a plan for this – that's the problem."
Wealthy foreign investors, mainly Russians, have flocked to Cyprus to take advantage of its low taxes and lack of scrutiny over the origin of funds. The crisis has thrown up accusations that Russians were able to launder huge amounts of money through transactions based on the island.
http://www.guardian.co.uk/world/2013/mar/24/cyprus-economic-model-broken-advisers
Krugman has referred to this as Iceland II. Iceland's banking sector was even bigger compared to the rest of its economy than is that of Cyprus. It was able to bounce back after cutting back the role of its banks. Hopefully, Cyprus can come back with a more balanced economy just as Iceland has.
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