The sun is rising over Cyprus, the temperature is 22 degrees Celsius (72 degrees Fahrenheit) and the air feels like silk. On a morning like this, Pavlos Loizou, who works with his father in one of the island nation's largest real estate firms, would normally get into his silver Land Rover, rush over to Limassol or Larnaca, appraise building lots, take happy customers out to lunch and earn a lot of money in the process. At least that's the way it has been in recent years.
Loizou, 33, is tall, boyish-looking and polite. He studied finance in London and Cambridge, and he seemed to be headed for a magnificent future. Not anymore.
"I do know one thing," he says. "I'm not giving up."
On a morning like this Andreas Neocleous, a 73-year-old man and a behind-the-scenes mover and shaker in Cyprus, would normally drive out to the shore in Limassol shortly after sunrise. He would do his yoga exercises on the beach in the early morning light and then drive home again, shower and eat a light breakfast. At about 7:30, he would be sitting in his office, drinking green tea. He would stay there all day, working until late in the evening -- as always.
His office has its own elevator and occupies the top floor of the Neocleous Tower in downtown Limassol. It's where Neocleous employs scores of attorneys, notaries and experts on holding companies, who represent and advise companies from more than 100 countries.
"This company was my life's work," he says. "I started very small, at a time when Cyprus was completely backward. My father was a farmer. We had a rocky field and exactly 12 chickens. Today more than 100 attorneys work for me. Of course I was happy to have succeeded, but what happens tomorrow?" Today, at any rate, he is running back and forth in his office, cursing and saying that he is going to sue the bankers. They are all criminals, he says, and if he had his way he would lock himself in a room with them for 24 hours -- with a whip in his hand.
A Heavy Burden
Normally, on a day like this, Nakis Dimitriou would at some point open his tavern on a ridge near the village of Pyrgos. He would greet the musicians, give the cooks and waiters their instructions and look forward to a wonderful evening of rebetiko folk music and revenues of a few thousand euros. That was what it used to be like. In his tavern, Dimitriou only hired live musicians, the best and most beautiful singers and bouzouki virtuosos. He borrowed money to buy an expensive sound system with a mixer console and foldback speakers for the stage, but now that the crisis has forced him to close the tavern, the loan has become a heavy burden.
"People are holding onto their money," Dimitriou says. "I still pay rent, in the hope of being able to open again -- and then create a place where there is music. It was my lifelong dream."
A tavern owner, a top attorney and a real estate broker -- to understand what happened and what the future holds for Cyprus, it's important to understand the lives of these men. Their stories reflect the history of the island, its rise and its sudden crash.
The three men have never met. Each one had his own life plan. The one thing they have in common is that their dreams, like those of so many others in Cyprus, are currently being dissolved.
Cyprus has managed to dodge a bullet, just barely, but at a high price. The country's second-largest lender, Laiki Bank, will be broken up. Small investors and savers with deposits of less than €100,000 ($128,000) will be spared and their accounts will be transferred to the Bank of Cyprus. But those with accounts worth more than €100,000 could lose everything above that amount. Customers of the Bank of Cyprus will also feel the pain. Their accounts will be frozen, although the details are still being worked out. One thing is clear: A lot of money is about to disappear.
Neocleous's firm, for example, has accounts with the country's three largest commercial banks. It has about €15 million in accounts with Laiki Bank, and significantly more with the Bank of Cyprus. Neocleous estimates his total loss at about €30 million.
'Run by Criminals'
"Only recently, I proudly told a business associate in Japan that my company had enough cash reserves to last two years without a cent in revenues. That's the way you have to do it, I said, and I was proud of myself. I had no idea at the time that the banks were being run by criminals."
Neocleous freely admits that much of his business was done with Russians. "Of course," he says when asked, "with Russians, Arabs, Norwegians, Japanese and Chinese. We advised any company that paid us to do so. Is there anything wrong with that? Cyprus was clearly a tax haven. That's how the laws were."
He denies, however, having anything to do with money laundering and dubious accounts. "Never with me," he says.
The Loizou family's real estate company also had all of its business accounts with Laiki Bank, which was once a rock-solid family bank, says Pavlos Loizou. In late 2012, when the situation became increasingly menacing, his father and uncle began cautiously transferring assets and reducing credit lines.
"But then the president and the finance minister went on TV and explained that there was absolutely no risk of a debt haircut and the loss of deposits." Loizou, his father and his uncle believed them. After all, they thought, this was Cyprus, not Greece.
They don't know exactly how much they've lost. But they'll have to pay 55 employees at the beginning of April, and they don't know where the money will come from. The son, Pavlos Loizou, is in better shape. His personal and business accounts are with the Bank of Cyprus. He has no access to his money and he will have to accept losses, which he expects to be between 30 and 40 percent. But that's good news these days.
Loizou, determined not to sit around at home, prefers to drive around the island and think -- about business ideas and about the future. The country is in a state of shock. Shops are closed in Nicosia and there are long lines in front of cash machines. The streets are quiet, as if the country were in mourning. There are demonstrations here and there, with schoolchildren and students chanting: "Troika out of Cyprus!" But their faces look sheepish and unsure, as if they knew that it isn't quite that easy.
A Visit to "Limassolgrad"
Unemployment in the Greek part of the island has risen from 6.8 to 14.7 percent in the last two years. Youth unemployment was 28.4 percent in 2012. Garbage is still being collected and service stations still have gasoline, but many places no longer accept checks and credit cards.
Only the Russians are still spending money. In the tourist center and port city of Limassol, nicknamed "Limassolgrad," they sit at the "Maxi," one of the many topless clubs, or at the "7 Seas." Another establishment, the "Dolce" on the beach promenade, is scheduled to reopen soon. The Dolce used to charge €1,000 to rent a sofa near the dance floor for an evening, champagne included, says Loizou. He had his bachelor party there. "The party is over," he says. On the other hand, it's possible that the crisis will just bring down the sofa rental price.
The broker sits in his Land Rover, driving past the dream houses of Limassol. First, there is the Twin Towers luxury residential complex on the promenade, with a bridge to the beach so that residents don't have to cross the street. Then there is a row of villas on one of the prettiest sections of the beach: 14 houses, each with about 400 square meters (4,300 square feet) of living space, complete with copper-clad facades and tropical hardwoods. Most of the houses are finished, but not all. Prices have dropped and construction is on hold, says Loizou. Then he drives through Yermasoyia, a neighborhood of luxury homes where the wealthy Russians live.
"Of course we have millionaires from Russia who are settling here, but no billionaires. They go the French Riviera. We get millionaires with assets of between two and 10 million, but now we've noticed that there is a limit to Russian involvement."
The fourth stop is the Hyper Tower, a futuristic, five-story office building. Each of the 815-square-meter floors is empty and ready for occupancy. Loizou has had to adjust the appraisal value of the building several times. "First it was 90 million, then 40, then 30 and now it's 11," he says. But it still hasn't been sold. He shakes his head.
"What exactly has happened?" he asks. "And what happens next?"
What Next for Cyprus?
All three men are asking themselves the same question: the top attorney, the real estate broker and the tavern keeper. There is much talk of the island's illustrious history these days. Cypriots have always been proud of their achievements, of their struggles on the road to prosperity and of their independence.
In Neocleous's office, there is a black-and-white photograph of him as a 16-year-old boy -- prisoner number 8554. He was a fervent nationalist and partisan at the time, says Neocleous, fighting against the British. He was arrested and sent to prison for three years, where he was tortured. When he was released, shortly before Cyprus gained its independence in 1960, he vowed to get rich as quickly as possible.
Although his father had little money, Andreas Neocleous finished school, went to Athens to study law and, in the 1970s, returned to his native Cyprus. By then it was no longer a backward island. The Cypriots had discovered something new and exciting: mass tourism.
The English in particular, Cyprus's erstwhile enemies, brought money into the country, and they needed accommodations. Hotels were built, followed by vacation cottages and, finally, houses for those who had decided to settle on the island. With all of the contracts to be signed and properties to be sold, there was plenty of work for a young attorney.
Nakis Dimitriou's dream was to run his own tavern. But he needed money for that, so he worked in construction, doing carpentry work and pouring foundations. He was paid 100 pounds a week, not the 40 pounds he would have earned elsewhere.
Defending the Cypriot Model
Pavlos Loizou, the real estate broker, wasn't born yet at the time. But his father opened a real estate company and laid the foundation for future prosperity. If the business continued to go well, he planned to send his son abroad to study.
And business did go well. In the five years leading up to the turn of the millennium, the number of registered holding companies grew from a few hundred to more than 40,000. Tankers and container ships around the world sailed under the Cypriot flag.
And then came 2004, when Cyprus joined the European Union and, three-and-half years later, the euro zone. The elimination of barriers that came as a result of those memberships made it even more appealing to register companies in Cyprus, and the number has since grown to an estimated 270,000. With its 10 percent corporate tax rate and other business-friendly regulations, Cyprus became the Cayman Islands of the Mediterranean, an offshore haven with a perfect climate and top-ranked in Europe in terms of the percentage of the population with university degrees. Unfortunately, all of them wanted to be attorneys, real estate brokers and bankers.
The model functioned very well, and the Cypriots staunchly defended it. Georges Vassiliou, president of the country from 1988 to 1993 and architect of its accession to the euro zone, is today one of Germany and of the troika, made up of the European Commission, the European Central Bank and the International Monetary Fund.
Cyprus is being used to set an example, he says. The way countries treat each other in the European family is shocking to Vassiliou. "We had an overinflated banking sector? Perhaps, but then you could also say that Germany has an overinflated automobile sector! Should we destroy that too?"
Souvlaki and Sandwiches
But Neocleous, the top attorney, Loizou, the broker and Dimitriou, the tavern keeper -- they all know that causes of the crisis are homemade. The more money poured into Cyprus in the past few years, the larger the banking sector grew. Most recently, banking assets amounted to more than seven times the country's gross domestic product. And the bankers, says a business professor in Nicosia, put on cowboy airs. Then came the financial crisis, and Cypriot banks were heavily affected by the restructuring of Greek debt. Rating agencies reduced the country's credit rating. The debt spiral had been set in motion.
How will Cypriots endure the brutal bailout process? The banking sector needs to be restructured as quickly as possible, says Neocleous. Meanwhile, he adds, scared customers need to be reassured, neglected sectors like tourism must be revived and, most of all, Cypriots have to persevere and plough ahead.
The Cypriot economy has been too one-sided, says Loizou, the broker. For him, the solution is to develop new sectors, like technology, IT and the sciences. "We have dealt with all kinds of setbacks throughout our history," says attorney Neocleous. Dimitriou, the man who wanted to rescue Cypriot music, now runs a souvlaki stand.
Loizou has already implemented two new business ideas. He set up a company that publishes a newsletter for investors and he has opened a sandwich shop. Thanks in part to the Russians, the shop is doing well with its menu of healthy food and freshly squeezed juices. A Russian boy, perhaps 10 years old, comes to the sandwich shop twice a week. Someone calls in advance to reserve a table, and then the boy is driven there in a dark, chauffeured Mercedes ML 400 with tinted windows. He recently brought along his aunts and nannies for a small party. It's the best way to build a customer base.
A sandwich shop, says Loizou, is a business model like any other -- nothing new or sensational, he explains, but a sound business nonetheless.