A ‘Boots on the Ground’ Perspective in Cyprus

Geoff is a Canadian expat who is retired and lives in Cyprus. He shares with us what is happening on the ground there and how he decided to make the Mediterranean island his home.

Nick: Tell us a little about yourself and your background?

Geoff: Three items standout from my childhood: I survived the German blitz on the UK in WWII – I received an excellent education thanks in part to the opening up of educational opportunities after the war by the UK socialist government. And I developed a wanderlust that has driven my life ever since. This first took me to Canada where we settled and raised a family. When the children were older, I went global, which was easy to do with an oil industry major, and we lived and worked in many Muslim countries for the next 18 years, ending up in Saudi Arabia, where my wife and I were able to enjoy a wonderfully interesting life. Our 4 children spent their last years at home with us in foreign locations –graduated from Canadian universities – and are now married with children of their own, living in various parts of North America.

Nick: How did you end up in Cyprus, what made it an attractive place?

Geoff: Retiring from Saudi Arabia, we felt we'd like to spend some time in Europe, and decided to settle for an 'assignment' in Cyprus (2 years.) All our foreign "assignments" had been for "2 years" – including our first adventure to Canada. But each became extended, and every time we moved on, we were sad to leave. To me, that was an excellent sign that we had chosen well.

Cyprus sits on the divide between East and West/Byzantium and Rome/Orthodox and Catholic. Its capital is one of the last remaining divided cities in the world since the 1974 division of the island between orthodox Greek in the south and the Muslim north, and Canadians had served for many years as the UN Peacekeeping force. The population speaks Greek, and most know English– and it just happened to be a reasonably good tax haven at that time.

We also wanted to stay long enough to see the transition that would ultimately change Cyprus forever when it joined the European Union. The island itself is more interesting than we had imagined: I have been a mountain climber and explorer of unknown country all my life, and we had enjoyed the 'freedom' of travel in the unfenced open desert country of Arabia that we had learned to love – never once did we experience an unpleasant encounter with an Arab (Bedouin) however far we traveled from the 'modern' oil towns of Eastern Saudi. Cyprus is similar in that the interior 'mountains' of the island are unfenced and beautiful. One is free to travel just about anywhere on 4x4 or on foot. Most visitors to the island only see the sea side towns,and most people living on the island know little about its relatively untamed centre (though human presence may be hiding behind every stone...a history of settlements dating back more than 9,000 years).

From my home here, I can see down to the Mediterranean Sea and up to the highest mountain (at close to 2,000m.) It is possible to ski in the morning and swim in the afternoon during the winter, or so I've been told. It is very hot in July-August and quite cold in January (especially indoors, since houses are traditionally made of concrete blocks and are uninsulated).  There are of course other attractions to suit most any taste, as witnessed by the flood of Brits, Russians, etc. who now make Cyprus their home.

Living costs and conditions are, on the whole, as good as or better than what most people left behind. The island is still divided with the northern third occupied and controlled by Turkey. In recent years, the border has been opened (at several gates), and people can now travel relatively freely between north and south.

(Near Cape Aspro, south coast, Cyprus – half an hour from Geoff’s home)

Nick: What is the situation like on the ground? Are there demonstrations going on or planned, other disruptions? How angry are the people?

Geoff: I don't think this will affect the northern part of the island at all (even though the EU pretends that the whole of Cyprus joined the Union). The people are angry.  No doubt about that!  They feel betrayed. Bank deposits are supposedly guaranteed up to €100,000. It was a huge (strategic) mistake on the part of the Germans to insist on such a levy on ALL deposits at all banks. Hopefully sense will return and they will only provide haircuts for the fatter cats (the midday news just indicated that this may be happening). It is reported that several hundred protesters gathered outside the parliament building (in the capital Nicosia), chanting, “thieves, thieves" and "people wake up, they're drinking your blood” and marching to the presidential palace. One protestor dumped sheep wool and animal feces (a quaint local custom) in front of police officers guarding the entrance.

Nick: The banks are closed, the ATMs are reportedly out of cash, and you can't wire moneyout of the country. What still works, credit cards, online banking?

Geoff: I live outside Limassol, the main town on the south coast. I saw no crowds at the only ATM within 10 miles of here, at the nearest branch of the Bank of Cyprus. Access to my bank accounts seemed OK until Sunday morning when the government ordered the banks to shut down, taking their computer systems off-line too. So we can no longer transfer money between accounts and once a card account is empty it will not be replenished by transfers from backup accounts either automatically, as is normal, or by individual action. ATMs are still operating, having now been restocked with cash, but access to cash ends once the card account is drawn down. Withdrawals and transfers were in any case limited to €1,000/day max.  All accounts are now essentially locked. Electronic fund transfers have been stopped since Sunday.

Nick: Did you take any action prior to the announcement to protect yourself?

Geoff: I had moved most of our funds out of the country and out of euros about a year ago (most expats I know did the same). I retained only enough for basic living costs in banks here. I also keep a small amount of cash on hand for an emergency such as this. I can use cards on offshore accounts if more is needed. As soon as I heard the news on Friday evening, I went down and took out most of the cash available by card (to the daily limit.) I went again on Sunday morning and emptied our card account. That's all I had access to, the other accounts are locked.

Nick: How is the media (Western and non-Western) doing in portraying the actual situation?

Geoff: Slowly the story is unfolding, and I think they are doing quite well, though the usual media hype is trying to make it more dramatic than it is. I hope they have brought the matter into wider focus and that the Cyprus government will be wise enough to respect the limits of bank deposit guarantees and take only from those accounts above the €100,000 limit. It seems to me that any theft from smaller accounts will accentuate the moral hazard and destroy whatever is left of trust in banks all over Europe, maybe everywhere. From the news today, Europe in general is responding with disbelief and the Troika is having to back off.  The CYBC radio news today suggests that the government vote will turn down the proposal. So, unless there is some last minute change, we can expect to see a rejection of the deal, and we'll be back to crisis talk in Brussels.

I think the facts are coalescing about the situation faced by our new president/government. It appears that he was not given any options by hardnosed German-led bureaucrats blinded by their attitude towards Russian money laundering in Cyprus. In order to get the bailout money, Cyprus was forced to agree to take money from the people – all people – regardless of their status or responsibility for the crisis that has developed. That is their big mistake. It is now widely felt that if they can walk roughshod over long-standing covenants (banking guarantees, etc.) in Cyprus, they can and will do so anywhere in Europe (and then the US). They have crossed a banking Rubicon. It occurs to me that they didn't do this even in the crisis of a world war. I remember as a child the day they came and took away all the decorative metal fencing and gates from around our house – but they didn't take people's savings!

The story goes that the Germans would not agree to bail out Cyprus’ banks because so much Russian money was involved. One must suspect that this is personal or political baggage of the EU leadership, perhaps activated by recent flare-ups of anti-Russian feelings in European affairs. It is like arguing that all the Argentine money stashed in US banks is from the black economy of South America – that all the Miami condos being sold to Brazilians is more money laundering – that Vancouver's real estate is being bought up by illegal Chinese tongs. I'm sure there is some truth in these reports – but not enough to make an attack on all the people in this manner. I also now suspect that the last president, Christofias, could not agree to this mandated levy on the people and refused to accept a deal – and so retired in grief from the madness that he could not accept.

Nick: For native Cypriots, which country is their preferred escape hatch to use for themselves and their savings?

Geoff: We have a lot of Greeks here that fled the chaos in Greece two years ago.  Individual Cypriots have links in many places. Following the diaspora of the mid to late 70s, family "cousins" are everywhere. When we came here, we were only taxed on income remitted here, and not on capital. Now Cyprus taxes us (gently) on worldwide income but still not on capital gains. Not as good as before – but still better than many alternatives. The best kept secret is the low cost of maintaining a home. Property taxes and local charges are miniscule by comparison with any in North America. Medical care is good, easily available, and cheap by US standards (an MRI or small operation that costs $10,000 in the US is 1/10 that here).

However if this tax grab continues to accelerate, it will be time to leave. Many in Europe are already realizing that the damage has been done. I'm afraid fewer people will want to come live here after this. Many of the offshore businesses operated from Cyprus will be reconsidering their position here. It is a well-located hub for companies dealing with MENA and ex-USSR countries and also as a maritime registry country. These companies had only recently got over the negative impact and loss of trust due to the EU regulations introduced 10 years ago. This, I'm sure, will have a further negative impact on growth in this sector.

In spite of all these negatives, especially with the EU Europe, I think Cyprus will remain attractive to Russians (we have three very nice Russian neighbours). And our latest boom is an influx of Chinese buyers who love the now-deflated real estate.

Nick: Thanks for your time Geoff.


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Nick Giambruno

Nick is Doug Casey’s globetrotting companion and is the Senior Editor of Casey Research’s International Man. He writes about economics, offshore banking, second passports, value investing in crisis markets, geopolitics, and surviving a financial collapse, among other topics. He is a CFA charterholder. In short, Nick’s work helps people make the most of their personal freedom and financial opportunity around the world. To get his free video crash course, click here.

Tags: retirement, offshore banking, expat, cyprus, confiscation, capital controls,