The UK economy won’t escape the consequences of the turmoil in Cyprus, but there remains hope that the travel market to the island should be unaffected.
That is the view of senior industry figures as Cyprus entered the eye of the eurozone storm this week.
Last night the Cypriot government unanimously voted to reject a bank levy, part of a €10 billion bailout of the island’s banks threatening yet more financial chaos.
Banks on the island are due to remain closed to prevent a ‘bank run’ – a mass attempt to withdraw cash that could trigger bankruptcy.
Travel sector finance specialist Graham Pickett of Deloitte warned the impact could be serious.
“This has put the eurozone crisis back on the table,” he said.
“There is a lot of short-term money in Cyprus, a lot of cash, and this will scare people who have invested all around Europe.”
Pickett added: “Are we going to see investors pulling money out of Europe? We’ll have to see how much it has unsettled people.
“The local holiday industry must be concerned. It has created uncertainty and everybody will be nervous.”
Pickett suggested tourism development on the island could come to a standstill. “Who is going to put money in now?
"It has brought a bad taste back into everything. It will scare everyone with funds in Europe.”
He asked: “Who will be next? Spain? Portugal?”
Sunvil managing director and Abta board member Noel Josephides, who is from Cyprus, said:
“People will lose 10% of their savings; my father’s pension will be affected. But the key question is, what happens now?
“Not many Germans will go to Cyprus; it will be the same as Greece last year.
“The big risk will be the Russian market. If the Russians stop going, it’s serious.
"There were 500,000 Russian visitors last year and there are very big Russian interests in Cyprus.”
However, Josephides said: “I don’t see a problem for the UK market. We took no calls [at Sunvil] on Monday.
“The season only really starts at Easter so the timing is not bad.
“I’m not aware of operators having a lot of money out there. I don’t believe many travel industry people will be caught out.
"There will be people who have money [in Cyprus banks] to pay for accommodation, but the timing is good.”
He said an operator the size of Sunvil might have €2,000-€3,000 in a Cyprus account.
The Foreign Office advised visitors to Cyprus to take different forms of payment (pounds, euros, credit/debit cards) “to ensure access to adequate funds”. It confirmed: “ATMs, debit and credit cards can be used as normal.”
The Cyprus Tourism Organisation said: “ATMs do function and contain cash for the needs of locals and overseas visitors.”
However, Pickett warned: “There is likely to be fallout for the UK economy. The industry is in for its share of pain for the mess we are in. Nothing is going to change from the UK government.”
WHO PAYS FOR THE BAILOUT?
The EU, the European Central Bank (ECB) and the International Monetary Fund – the so-called ‘troika’ – are behind the €10 billion bailout of Cyprus banks.
The deal agreed last weekend imposed a 9.9% levy on deposit accounts above €100,000 and 6.75% below.
There were talks to renegotiate this ahead of Thursday when banks were due to reopen, with suggestions of a 15.6% levy on wealthier depositors and nothing on smaller.
The recently-elected Cyprus government feared a levy above 10% would drive away wealthy Russians who hold one-third of Cypriot bank deposits.
The ECB pledged to keep Cyprus afloat so long as a bailout is agreed.
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