By Daniel Hunter
Warwick Business School Professor Hari Tsoukas has warned it will take Cyprus a decade before it will begin to recover from the crippling bailout it is suffering.
The 10bn euro rescue plan agreed by the European Union and Cypriot MPs will see depositors with more than 100,000 losing 40 per cent 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 said: "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.
"Unemployment is likely to at least double from 14 per cent to at least 25 per cent and possibly up to 30 per cent. Not so long ago it was just five per cent.
"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.
"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 Professor 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.
"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."
Professor 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."
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