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As economy slides, Cypriots face tough choice: stay or go

Dino Sophocleous is worried about his parents.

In their late seventies, they spent their careers as civil servants within the Cyprus government, earning pensions that have provided the basic necessities and some money leftover to buy a comfortable quality of life in retirement.

It’s the kind of life commonplace across the Eurozone group of 17 countries, a group Cyprus joined in 2008, transforming the tiny state into an offshore financial powerhouse.

The Mediterranean island’s descent into bankruptcy however has pulled the rug out from under that basic security, for the Sophocleous’ and hundreds of thousands of others.

“I expect their pensions will be decreased, and I’m very concerned about their ability to maintain a half decent lifestyle,” their son said Monday.

Dino, 49, emigrated from Cyprus in the 70s to go to university in Toronto. He followed tens of thousands of Cypriots to Canada in the wake of the Turkish invasion in 1975.

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As the country’s once-booming financial sector is dramatically restructured under conditions imposed by the European Central Bank and with an economy poised to slide into severe recession, Cypriots may again seek refuge in Canada or elsewhere.

Sophocleous, who sits on the board of the Cypriot Federation of Canada, is already inundated with calls from would-be emigrants.

“People are looking to get out, to put it mildly.”

While small depositors on the island have been spared the immediate pain of a bank levy on savings, the country faces an even darker prospect now: Years of economic attrition.

As part of the new bailout, billions in savings that rich foreigners have poured into Cyprus in recent years – funds the country’s economy has come to rely on for stability – are being seized by the Cyprus government to stabilize the banking system.

The plan targets deposits above 100,000 euros, but the government hasn’t said how much it will skim off the top of these larger depositors – it could be 4 per cent, or 40.

At the same time, Cypriot government has imposed so-called “capital restraints” in a bid to prevent a run on the banks that used to power the country’s economy.

But the capital restraints are a temporary measure. The bailout is sure to trigger a slow exodus of money as the restraints are eased, a process sure to markedly resize the country’s financial sector.

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“The severe losses on deposits accounts, coupled with capital restrictions and much tighter regulatory oversight under a [bailout] program, will dramatically reduce financial activity in Cyprus,” TD Bank said Monday. “And with it, the entire economy will suffer.”

“There is absolutely zero sense of relief,” Sophocleous said.

Cyprus’ economy shrank by 2.4 per cent last year and is expected to see further pullback of 3.5 per cent this year before improving in 2014.

TD said the bailout reforms “make this forecast look optimistic.”

French bank Société Générale predicts an economic contraction in Cyprus of 20 per cent through 2017 – depression territory.

As it stands, the unemployment rate in Cyprus is 14.7 per cent, more than double the Canadian jobless rate.

“I expect the unemployment rate to go through the roof,” Sophocleous said.

Many everyday Cypriots caught up in the financial chaos will still bear a disproportionate amount of the pain, as well.

Those in local industries like tourism and construction are unable to pull up stakes and relocate.

Petros Mina, a second-generation Cypriot Canadian and board member for the Cypriot Community of Mississauga said he has aunts and uncles in both fields.

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Like Sophocleous’ parents, Mina’s extended family has little choice but to bear the outcome, however long and protracted.

“They’re established,” Mina said. “It’s not like they can just uproot and go.”