Economy

A Visit To The Island Nation Of Cyprus, Europe's Dodgy New Fiscal Haven

Banking, Cyprus-style
Banking, Cyprus-style
Cerstin Gammelin

NICOSIA - The moment you arrive in Cyprus you sense something about the little eastern Mediterranean island that sets it apart from its European neighbors. There are an unusual number of men in suits carrying briefcases. And the bright billboards on the streets leading from the airport have Cyrillic writing on them.

Some of the billboards advertise Russian funds and other Russian bank products for Russian clients, but others – also in Russian – advertise holidays on the sunny beaches in the southern part of the island. Here and there among all the ads in Russian are some in Chinese – China has discovered Cyprus, and one company has already bought several hectares of land to build a “vacation paradise.”

Take a walk through the streets of the capital Nicosia and one look at the brass plaques on the doors of office buildings leaves the impression there are a lot more plaques than actual offices. In fact a walk through Nicosia feels like a John Le Carré thriller.

And it’s precisely for that reason that some European countries are hesitant when it comes to bailing Cyprus out and saving it from bankruptcy. The head of Germany’s Social Democratic Party (SPD), Sigmar Gabriel, has said publically that he could not imagine "German tax payers saving Cypriot banks whose business model is based on aiding and abetting tax fraud." Without SPD votes, Federal Chancellor Angela Merkel might not be able to get the parliamentary majority she needs to be able for help to Cyprus to go ahead.

In the euro group, Gabriel’s remark was a source of much head shaking – for several reasons. For one thing, there is no official proof that Cypriot banks are encouraging tax fraud. Independent auditors as well as the International Monetary Fund have issued certificates of good behavior, and a report by the BND (the German secret service) provides no information to that effect.

Diplomats and public officials have expressed some wonderment at Gabriel’s naiveté. A high-level EU diplomat explains why: ask yourself the question, he says, who is really being rescued if the euro countries grant Cyprus the 12 billion euros it needs?

The answer is simple: the creditors. And the move would stabilize the Cypriot financial system. If no money flows to Cypress from the rescue fund, then sometime early this summer Cyprus’s banking system will collapse. Theoretically that would mean that millions of investments would be wiped out.

But only theoretically. Because by then – and euro experts unanimously agree on this – investors would have already long removed their money. "As soon as they get a whiff of danger they’re out of there, that’s perfectly clear," says the diplomatic source. "If the euro countries don’t help, they’re not hurting Russian or Chinese or other millionaires – they’re risking total crisis in Cyprus."

Oversized banking sector

The experts also point out that it is impossible when undertaking a bank rescue to distinguish between squeaky-clean “good” investors and the black sheep.

At the same time, hardly anyone would dispute the fact that Cyprus is not entirely innocent in all of this. Cyprus has a long tradition of attracting business people from around the world and it has done everything to increase their numbers. Its large banking sector, which is completely oversized in regard to size of the country, is no exception. Cypriot and Greek banks were heavily interwoven and when the crisis hit in Greece, the Cypriots lost nearly 5 billion euros, which is to say about a fourth of gross national product.

Cyprus also has unusual citizenship laws. For example, any foreigner who invests at least 10 million euros each year directly in the country, or 15 million euros over five years, has the right to apply for a passport.

British company law applies in Cyprus, which makes it easy for business people to create companies and do business without having to divulge who the real benefiting owner is. It also makes it relatively easy to hide the real provenance of money.

Yet the experts warn against criticizing Cyprus for being Europe’s biggest money laundering venue – take a look at London first, they say, where of course British company law also applies and where it would also be comparatively easy to create certain companies without having to divulge benefiting owners.

A high-level EU official describes the system this way: rich Russians invest a lot of money in Cyprus, found companies, live in Cyprus part of the time, some even apply for citizenship. Then they move on to London, open another company, and take out some loans.

And then either because they’re homesick, or because it is allegedly easier to make profits in Russia’s corrupt economy, they decide to invest in Russia. So they transfer money from London to Cyprus, and from there invest it in Russia. It is this flow of money that makes Cypriots the largest direct investors in Russia.

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Future

7 Ways The Pandemic May Change The Airline Industry For Good

Will flying be greener? More comfortable? Less frequent? As the world eyes a post-COVID reality, we look at ways the airline industry has been changing through a pandemic that has devastated air travel.

Ready for (a different kind of) takeoff?

Carl-Johan Karlsson

It's hard to overstate the damage the pandemic has had on the airline industry, with global revenues dropping by 40% in 2020 and dozens of airlines around the world filing for bankruptcy. One moment last year when the gravity became particularly apparent was when Asian carriers (in countries with low COVID-19 rates) began offering "flights to nowhere" — starting and ending at the same airport as a way to earn some cash from would-be travelers who missed the in-flight experience.

More than a year later today, experts believe that air traffic won't return to normal levels until 2024.


But beyond the financial woes, the unprecedented slowdown in air travel may bring some silver linings as key aspects of the industry are bound to change once back in full spin, with some longer-term effects on aviation already emerging. Here are some major transformations to expect in the coming years:

Cleaner aviation fuel

The U.S. administration of President Joe Biden and the airline industry recently agreed to the ambitious goal of replacing all jet fuel with sustainable alternatives by 2050. Already in a decade, the U.S. aims to produce three billion gallons of sustainable fuel — about one-tenth of current total use — from waste, plants and other organic matter.

While greening the world's road transport has long been at the top of the climate agenda, aviation is not even included under the Paris Agreement. But with air travel responsible for roughly 12% of all CO2 emissions from transport, and stricter international regulation on the horizon, the industry is increasingly seeking sustainable alternatives to petroleum-based fuel.

Fees imposed on the airline industry should be funneled into a climate fund.

In Germany, state broadcaster Deutsche Welle reports that the world's first factory producing CO2-neutral kerosene recently started operations in the town of Wertle, in Lower Saxony. The plant, for which Lufthansa is set to become the pilot customer, will produce CO2-neutral kerosene through a circular production cycle incorporating sustainable and green energy sources and raw materials. Energy is supplied through wind turbines from the surrounding area, while the fuel's main ingredients are water and waste-generated CO2 coming from a nearby biogas plant.

Farther north, Norwegian Air Shuttle has recently submitted a recommendation to the government that fees imposed on the airline industry should be funneled into a climate fund aimed at developing cleaner aviation fuel, according to Norwegian news site E24. The airline also suggested that the government significantly reduce the tax burden on the industry over a longer period to allow airlines to recover from the pandemic.

Black-and-white photo of an ariplane shot from below flying across the sky and leaving condensation trails

High-flying ambitions for the sector

Joel & Jasmin Førestbird

Hydrogen and electrification

Some airline manufacturers are betting on hydrogen, with research suggesting that the abundant resource has the potential to match the flight distances and payload of a current fossil-fuel aircraft. If derived from renewable resources like sun and wind power, hydrogen — with an energy-density almost three times that of gasoline or diesel — could work as a fully sustainable aviation fuel that emits only water.

One example comes out of California, where fuel-cell specialist HyPoint has entered a partnership with Pennsylvania-based Piasecki Aircraft Corporation to manufacture 650-kilowatt hydrogen fuel cell systems for aircrafts. According to HyPoint, the system — scheduled for commercial availability product by 2025 — will have four times the energy density of existing lithium-ion batteries and double the specific power of existing hydrogen fuel-cell systems.

Meanwhile, Rolls-Royce is looking to smash the speed record of electrical flights with a newly designed 23-foot-long model. Christened the Spirit of Innovation, the small plane took off for the first time earlier this month and successfully managed a 15-minute long test flight. However, the company has announced plans to fly the machine faster than 300 mph (480 km/h) before the year is out, and also to sell similar propulsion systems to companies developing electrical air taxis or small commuter planes.

New aircraft designs

Airlines are also upgrading aircraft design to become more eco-friendly. Air France just received its first upgrade of a single-aisle, medium-haul aircraft in 33 years. Fleet director Nicolas Bertrand told French daily Les Echos that the new A220 — that will replace the old A320 model — will reduce operating costs by 10%, fuel consumption and CO2 emissions by 20% and noise footprint by 34%.

International first class will be very nearly a thing of the past.

The pandemic has also ushered in a new era of consumer demand where privacy and personal space is put above luxury. The retirement of older aircraft caused by COVID-19 means that international first class — already in steady decline over the last decades — will be very nearly a thing of the past. Instead, airplane manufacturers around the world (including Delta, China Eastern, JetBlue, British Airways and Shanghai Airlines) are betting on a new generation of super-business minisuites where passengers have a privacy door. The idea, which was introduced by Qatar Airways in 2017, is to offer more personal space than in regular business class but without the lavishness of first class.

Aerial view of Rome's Fiumicino airport

Aerial view of Rome's Fiumicino airport

commons.wikimedia.org

Hygiene rankings  

Rome's Fiumicino Airport has become the first in the world to earn "the COVID-19 5-Star Airport Rating" from Skytrax, an international airline and airport review and ranking site, Italian daily La Repubblica reports. Skytrax, which publishes a yearly annual ranking of the world's best airports and issues the World Airport Awards, this year created a second list to specifically call out airports with the best health and hygiene standards.

Smoother check-in

​The pandemic has also accelerated the shift towards contactless traveling, with more airports harnessing the power of biometrics — such as facial recognition or fever screening — to reduce touchpoints and human contact. Similar technology can also be used to more efficiently scan physical objects, such as explosive detection. Ultimately, passengers will be able to "check-in" and go through a security screening anywhere at the airports, removing queues and bottlenecks.

Data privacy issues

​However, as pointed out in Canadian publication The Lawyer's Daily, increased use of AI and biometrics also means increased privacy concerns. For example, health and hygiene measures like digital vaccine passports also mean that airports can collect data on who has been vaccinated and the type of vaccine used.

Photo of planes at Auckland airport, New Zealand

Auckland Airport, New Zealand

Douglas Bagg

The billion-dollar question: Will we fly less?

At the end of the day, even with all these (mostly positive) changes that we've seen take shape over the past 18 months, the industry faces major uncertainty about whether air travel will ever return to the pre-COVID levels. Not only are people wary about being in crowded and closed airplanes, but the worth of long-distance business travel in particular is being questioned as many have seen that meetings can function remotely, via Zoom and other online apps.

Trying to forecast the future, experts point to the years following the 9/11 terrorist attacks as at least a partial blueprint for what a recovery might look like in the years ahead. Twenty years ago, as passenger enthusiasm for flying waned amid security fears following the attacks, airlines were forced to cancel flights and put planes into storage.

40% of Swedes intend to travel less

According to McKinsey, leisure trips and visits to family and friends rebounded faster than business flights, which took four years to return to pre-crisis levels in the UK. This time too, business travel is expected to lag, with the consulting firm estimating only 80% recovery of pre-pandemic levels by 2024.

But the COVID-19 crisis also came at a time when passengers were already rethinking their travel habits due to climate concerns, while worldwide lockdowns have ushered in a new era of remote working. In Sweden, a survey by the country's largest research company shows that 40% of the population intend to travel less even after the pandemic ends. Similarly in the UK, nearly 60% of adults said during the spring they intended to fly less after being vaccinated against COVID-19 — with climate change cited as a top reason for people wanting to reduce their number of flights, according to research by the University of Bristol.

At the same time, major companies are increasingly forced to face the music of the environmental movement, with several corporations rolling out climate targets over the last few years. Today, five of the 10 biggest buyers of corporate air travel in the US are technology companies: Amazon, IBM, Google, Apple and Microsoft, according to Taipei Times, all of which have set individual targets for environmental stewardship. As such, the era of flying across the Atlantic for a two-hour executive meeting is likely in its dying days.

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