in cyprus, the economic misery is just beginning to sink in

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The deal has been struck, and now, Cypriots say, the betrayal is sinking in. Nick Squires reports on how the islanders are goin to need the luck of the gods to avoid plunging off an economic cliff. As she counts another day's paltry takings and frets about how to pay the rent, Dimitra Charilaou knows she is a tiny cog in the machine that drives Cyprus's once thriving economy.
She owns a small hole-in-the-wall electrical supplies shop squeezed between a kebab joint and a dodgy-looking nightclub adorned with photos of blonde East European women in the old town of Nicosia, the island's capital.
But multiply her predicament by 850,000 – the population of this former British colony - and it is clear that the island that claims to be the birthplace of Aphrodite, and which has streets named after Greek heroes like Odysseus, is going to need the luck of the gods to avoid plunging off an economic cliff in the wake of last week's controversial bailout deal.
Picking out a €10 note from her cash till, Mrs Charilaou, 59, told The Sunday Telegraph: "This is what I've earned today. My rent is €500 a month, how am I going to pay it? The retail business is bleeding, everybody is shutting down.
"Today it's Cyprus, tomorrow it will be Italy. It will be a domino effect. We use to live peacefully, we had jobs. Now they have changed our lives."
Last week the sun shone over Nicosia, whose old town is a tangled warren of narrow lanes, Byzantine churches and colonial bungalows with wooden verandas.
But dark economic clouds are looming over Cyprus in the wake of the bail-out struck with Brussels, in which the country's two biggest banks are to be restructured and depositors hit with a "levy" of up to 80 per cent of their savings above €100,000.
In a move that was seen to have crossed the Rubicon regarding the guarantee of savings within the eurozone, customers have had their accounts frozen; exactly when their money will be confiscated in the "haircut", as it is euphemistically known, is expected to be announced this week.
So far there has been none of the violence that has hit neighbouring Greece, where masked protesters hurling stones have frequently clashed with riot police shooting tear gas in cities like Athens and Thessaloniki.
Conventional wisdom has it that Cypriots are more restrained than their Greek cousins – calmer and more "British" in fact, reflecting their 80-year history as one of the strategic lynchpins of the Empire, before they gained independence in 1960.
But there are fears that all that could change and that some Cypriots could suddenly snap when they realise just how grim their future looks, as the financial and banking sector withers, the economy contracts by up to a quarter and unemployment soars to 25 per cent.
"I wouldn't be surprised if someone took a gun and went after whoever is responsible for all this," said Marios Georgiou, a 45-year-old civil servant who stands to lose 40 to 50 per cent of his savings, held in the two banks targeted in the bail-out, Laiki and Bank of Cyprus.
"I ask you, is this fair? Is this legal? It cannot be. People can't believe it. We have been in a struggle with the Turks for 40 years, but it took the EU just one day to come here and take all our money."
Sipping a coffee at a bar between tourist boutiques selling postcards and sunglasses, Kyriacos Loizides, 53, a businessman, said: "Next week there will be huge demonstrations. I think there will be violence and killings. People will take revenge against the people who created this scandal, this tragedy.
"Cyprus will become like Greece, where people throw yoghurt and tomatoes at politicians whenever they see them. We feel that soon everybody will be beggars here."
The stories of financial ruin have been trickling out all week – the elderly man who emigrated to Australia, worked hard for 35 years and now faces losing almost all of the €800,000 nest-egg he deposited in a Cypriot bank on his return; the wholesaler who was unable to pay the €1 million needed for a huge consignment of seafood fish that arrived in the port of Limassol, and which ended up rotting on the dockside.
A drastic reform of the banking system was the condition imposed by the troika of international lenders – the European Bank, the European Commission and the IMF – in exchange for granting Cyprus €10 billion in emergency funding.
The deal, hammered out during marathon talks with Nicos Anastasiades, the newly-elected president of Cyprus, averted the risk of the country going bankrupt and crashing out of the euro.
But Cypriots feel it was a betrayal by their EU partners and reserve particular opprobrium for Germany's Chancellor, Angela Merkel, and its finance minister, Wolfgang Schauble.
Berlin is being widely blamed for wanting to impose its standards of fiscal austerity and probity on Cyprus and of trialling a debt reduction model that could be applied to other struggling countries along the Mediterranean littoral.
One Cypriot newspaper said the troika had "pillaged our economy and desecrated our sovereignty", while another railed against "the EU vultures".
"Mrs Merkel and Dr Schauble decreed that the Cyprus economic model was not acceptable," Jim Leontiades, an analyst, wrote in the Financial Mirror, a Cypriot newspaper. "No other eurozone country has been required to remodel itself and destroy its main industry."
Germany, for its part, was reluctant to spend taxpayers' money on bailing out the large number of Russians who had money in Cyprus's banks, some of it from shady provenance.
But the introduction of the capital controls was unprecedented in the 14-year history of the euro, with analysts saying that it was the sort of thing that usually happened in Africa or Latin America.
"It's criminal, what they have done," said Carmen, 34, a Romanian businesswoman who has lived in Cyprus for two years.
"Never have I heard of a country robbing its citizens' bank accounts like this. There will be trouble for the government over this. If you live by fire, you die by fire."
Facing a drastic contraction of the economy, many Cypriots say their only hope now is the development of huge reserves of natural gas which were found beneath the seabed of the island's exclusive economic zone, two years ago.
In the bars and coffee shops of Nicosia, where locals puff on hookah pipes packed with fragrant tobacco, there is constant talk that the billions of euros to be earned from the gas could be the salvation of Cyprus.
But exploration is still at an early stage and the gas may not come on tap until 2018 or 2019. And exploiting it will only exacerbate Cyprus's already tense relations with Turkey and the northern, Turkish-occupied portion of this divided island.
Cyprus has been split since Turkey invaded the north in 1974, after an attempted coup in the Greek part of the island raised fears in Ankara that the island was about to unify with Greece.
Hopes of a breakthrough in peace talks in 2004 were dashed after Greek Cypriots rejected a peace plan brokered by then-UN Secretary General Kofi Annan.
Turkey is deeply unhappy about the prospect of Cyprus exploiting the gas without its consent, saying that the resources also belong to Turkish Cypriots. It also lays claim to parts of Cyprus's EEZ.
"It is not acceptable that the Greek Cypriot side uses the economic crisis it is facing as an opportunity to create a new fait accompli," the Turkish foreign ministry said in a recent statement.
The only acceptable way to exploit the reserves was with "the clear consent of the Turkish Cypriot side regarding the sharing of these natural resources."
In Nicosia, there are daily reminders of the tensions with the Turks. The UN-administered "Green Line" splits the city in two, making it the last divided capital in the world.
The sound of the muezzin call to prayer can easily be heard in the Greek half of the city, mosques and minarets loom just across the rooftops and a giant Turkish Cypriot flag has been etched in red and white into a nearby mountain side.
Wander through the Greek Cypriot part of the old town in any direction and within 10 minutes your path will be blocked by sand bags, razor wire and barricades made of oil drums filled with concrete.
Bored soldiers with automatic rifles man squat military bunkers. Painted in the blue and white of the Greek flag, they look out onto a scruffy no man's land towards the other side of the Green Line, where the flags of Turkey and the self-declared Turkish Republic of Northern Cyprus flutter in the wind.
In the dead ground in between there are shattered houses and shops, their walls pockmarked with bullet holes, their wooden shutters fading in the sun. Here, time has stood still since 1974.
Some Cypriots see the crippling bail-out deal as a deliberate attempt by the EU to weaken them and drive them to the negotiating table with the Turkish-occupied part of the island, to try to solve the 40-year dispute once and for all.
"There are ulterior motives at work here – other countries want to get their hands on our oil and gas," said Miltos, a 34-year old businessman who was waiting anxiously for the island's banks to open on Thursday after being shut for 10 days to avoid a massive exodus of funds.
"We have a loan we can't repay. We are going deeper and deeper into the hole. So we'll have to sell our only remaining asset – the oil and gas.
"Cyprus is small, the EU can use us as a guinea pig. They can rape our resources and force us to accept any plan for reunification."
Cypriots admit that they are partly to blame for the mess they find themselves in. The country put too much reliance on its burgeoning financial services sector and its banks were heavily exposed to debt in Greece.
Islanders have been living beyond their means for years, said Mr Loizides, the businessman in Nicosia. "But a lot of it was the banks' fault. A bank called me a while back and said they could offer me a €6,000 overdraft and €5,000 on my credit card. I hadn't even asked for it."
As Mrs Charilaou contemplated a tough time for her electronics shop, she learnt that a pharmacy just round the corner is to close this weekend.
"They had been in business for 50 years," she said. "A friend of mine who worked there for 35 years is in tears. We are a laughing people but I'm afraid that we are going to forget how to laugh."