Gold Magazine April - May 2013, Issue 25 | Page 35

The Day After… and
The Month After
MARCH 15 WAS NOT THE END OF THE WORLD AFTER ALL

I

t was approaching 10am on
Saturday 16 March and Elpida
was waking after a good night
out at a carnival party at the
start of the long weekend.
Her home town of Limassol
is renowned not only as the
international business centre of Cyprus,
in which she enjoys a successful career as a
fiduciary service provider, but also for its
annual carnival celebrations.
As she browsed her smartphone while
sipping her coffee, Elpida saw an early
message from a colleague. At first she could
not understand what it was about. Only
after reading the message several times did
she begin to comprehend the severity of its
content. It was not going to be a relaxing
weekend after all! The message indicated
that the previous night’s Eurogroup meeting to help resolve the financial problems
faced by Cyprus and its banking system
had resulted in what appeared to be the
end of the world: an unprecedented and
totally unforeseen decision to enforce a
haircut on bank deposits.
As she started searching for more information, a cold sweat came over her. As a
person who knew very well where her and
her country’s interests lay, any concern for
personal or company losses were left aside.
She was thinking of her clients who had
their money in Cyprus banks and the devastating blow that they would suffer.
A dark realisation began to form in
Elpida’s mind of the impact which the
Eurogroup decision could have. After so
many years of hard work by the professionals of Cyprus to attract foreign investors to
the island, and the pro-business approach
of successive governments to developing a
favourable and strong tax and legal regime,
the huge success of the country, especially
in the years following EU membership,
looked likely to be overturned in just one
night.
Days passed, uncertainty and confusion
reigned, scenarios changed by the hour,
with the following two long weekends
unfortunately no better than the first. The

end result seemed even scarier than the
initial scenario: the closing down of the
country’s second largest bank and a severe
haircut on deposits held in the biggest one.
Yet in the midst of all the gloom, there
was a small glimmer of hope. Elpida realised that, during this period, not a single
client had expressed the desire to restructure outside Cyprus. As her mind became
clearer after her initial panic, she could see
the reasons for this.
While it was not the best solution for
depositors and other investors in the two
main banks, the Eurogroup’s decision was
being implemented in the best way possible, in terms of constraining losses to
where the problem had originally arisen.
The other banks and cooperatives would
not suffer any damage from the refinancing programme.
In addition, what Elpida had always argued about Cyprus being an international
business centre but not a financial centre –
mainly due to the absence of international
banks and financial institutions – had for
once worked in a positive way. Even the
total €67 billion deposited in Cyprus (including deposits by Cypriots) seemed tiny
when compared with the total number of
companies registered on the island and
other competing countries such as Luxembourg and Singapore, where the equivalent
figure would be in trillions of euros.
Furthermore, the international
business sector had remained relatively unscathed by the tax and other
measures agreed between Cyprus and
its lenders. Even the planned increase
in the Corporate Tax rate was not expected to significantly affect companies
of foreign interests, especially based on
the current model of Cyprus, which
mostly serves holding and investment
companies.
Combining the above with a modern
and flexible legal regime, the island’s welleducated human capital, first-rate infrastructure, strategic geographical location
and a plethora of other advantages, there
was no doubt that Cyprus would continue

to be an attractive location for international
business and tax planning.
Elpida was under no illusions. She knew
that such developments would inevitably
result in some casualties sooner or later,
especially for clients that had suffered a loss
on their deposits. But she was
also confident that, with a
great deal of hard work,
the vast majority of
her clients could be
retained and that
it was now in
Cypriot hands
to kick-start the
economy with
By George
a solid banking
Savvides
foundation and
with the lessons
well learned by
everybody. She
could begin
to look to the
future with confidence and
hope…

ot
w in Cypriart
It is no kick-st
hands to my with
the econo nking
a solid ba n and
foundatiolessons
with the ed by
well learny
everybod

info: George Savvides is a partner at Fiducenter (Cyprus)

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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Gold 35

09/04/2013 15:06