Many of the recent news stories about Cyprus have referred to it as a “holiday island”. That might be how others regard it but, as we now know, the country itself had much greater ambitions. The idea of being an international financial centre for the Eastern Mediterranean made sense, and could still work but they were too greedy and went for the easy option by building the business on the basis of not asking awkward questions. Trying to be both part of the EU and an off-shore financial centre was a pretty doubtful move. You can’t be both in a club and try to make money by helping citizens from other members circumvent the rules of their home country. Attracting huge amounts of questionable cash and then investing so much of it in just one country (Greece) was spectacularly stupid – did none of their bankers ever learn about “asset distribution”?. The plan worked for a while but its ultimate failure was always likely and hastened by appalling incompetence.
Whilst all this was happening, the country took its eye off its major income-earner. Astonishingly, tourist arrivals have actually fallen in the last ten years. With easy money to be earned elsewhere, the government seems to have let tourism drift. Compare this to Dubai, which also has ambitions to be an international financial centre – there, tourism has been developed every bit as aggressively as its other businesses.
A revival in tourism has been one of the few bright spots in Greece in the last year but it is much harder to see that happening in Cyprus. It has gained a reputation for being expensive and offering questionable quality for the prices charged. The country also lacks a proper image – the distance from much of Europe means it is unlikely to succeed at the lower-end of the market but its efforts to promote itself as a luxury destination have been unconvincing.
One of the major problems has been a lack of cheap flights. The government has always been at pains to protect the ailing Cyprus Airways and has been very reluctant to embrace the budget carriers and the subsidies they require. Now, Cyprus Airlines is in a worse financial state than ever and faces a potentially devastating enquiry by the EU into illegal state subsidies and loans. The initial evidence appears pretty clear-cut and the amounts involved are large. It is hard to see how the airline could continue if it were made to pay back even some of the money under investigation.
Now, Cyprus desperately needs its tourism business and it is going to be an uphill fight to get back all the lost ground.