Unemployment in Cyprus will 'double' after bailout says Cypriot academic

PROFESSOR Hari Tsoukas, a Cypriot academic based at the UK's Warwick Business School, has warned unemployment could double to 30 percent in Cyprus following the nation's bailout.  The EUR10 billion rescue plan agreed by the European Union and Cypriot MPs will see depositors with more than 100,000 losing 40 percent of their cash while the Popular Bank will be closed and its debts absorbed by the Bank of Cyprus.

There will also be controls on cash flows to stop more money being drained out of the country. Although it has stopped the Cypriot economy from collapsing Professor Tsoukas believes it will bring great hardship for the next decade.

The Cypriot professor, who is back in his homeland at present, said,  "Unemployment is likely to at least double from 14 percent to at least 25 percent and possibly up to 30 percent. Not so long ago it was just five percent.

"Those two banks employ around 8,000 people, which is a big number for a country like this.

"They are extremely important for the economy.

"Imagine if the City of London was a country and its financial institutions were suddenly wiped out. It's extraordinary. If you try to impose a new business model overnight, the country will stop functioning.

"This is a fascinating case study of how to turn a problem into a drama and a drama into a crisis. Things should not have escalated to this point," Prof Tsoukas said.

"I think the future could be terribly bleak. It's going to have huge knock-on effects for the whole economy."

There is speculation that Cyprus will leave the Eurozone now with a lot of resentment towards the European Union, and although Prof. Tsoukas believes the interest of the country is best served within the Euro, the price Cyprus pays for Eurozone membership has become so high that he will not be surprised if the debate concerning a return to the Cyprus pound intensifies and, ultimately, the country is forced to exit the common European currency.

"There is a lot of anger against the Eurozone in Cyprus because of the way this has been handled. The EU has been perceived by many people as almost hostile to the country; after all we are talking about the shrinking of the banking sector which is the most important sector of the economy almost overnight. It is a violent change to the business model and people will see their lives being turned upside down," Prof. Tsoukas  said.

"These voices to exit the euro will increase, but I don't think they will dominate in the short term at least, and I still think people will probably see it is in their best interests to stay part of the euro."

Prof. Tsoukas says in the long-term Cyprus' untapped gas reserves will offer a way to grow the nation's economy again.

"It is a huge challenge now facing the Cypriot people, we have been resilient before and we will need all that again," said the Professor of Organisation Studies.

"We have seen for the first time since 1974 signs of the country sliding into a non-normal economy. People have been able to get by, but most worryingly people are seeing their daily lives out of normality.

"We are going to see things getting worse in Cyprus, life will deteriorate. Life will be difficult for people living in Cyprus and the country will be another version of Ireland and Greece with a tough austerity programme.

"In another decade we can look forward to another recovery and money coming from the country's natural gas reserves. Banking will still play a part but the economy of Cyprus will shift to an energy-based economy and other services. The question of course is how people will survive between now and the end of the decade. But the powerful members need not worry about it - Cypriots do not vote in their elections!"

www.wbs.ac.uk

 

BACKGROUND:

Warwick Business School, located in central England, is the largest department of the University of Warwick and the UK's fastest rising business school according the Financial Times. WBS is triple accredited by the leading global business education associations and was the first in the UK to attain this accreditation. Offering the full portfolio of business education courses, from undergraduate through to MBAs, and with a strong Doctoral Programme, WBS is the complete business school. Students at WBS currently number around 6,500, and come from 125 countries. Just under half of faculty are non-UK, or have worked abroad. WBS Dean, Professor Mark P Taylor, is among the most highly-cited scholars in the world and was previously Managing Director at BlackRock, the world's largest asset manager.

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