Cyprus: country overview27 May 2012
by Ina Dimireva -- last modified 12 February 2013
The area of the Republic of Cyprus under government control has a market economy dominated by the service sector, which accounts for nearly four-fifths of GDP. Tourism, financial services, and real estate are the most important sectors.
Year of EU entry: 2004
Member of Schengen area:No
Political system: Republic
Capital city: Nicosia
Total area: 9 250 km²
Population: 0.8 million
Listen to the official EU language: Greek
Cyprus is the largest island in the eastern Mediterranean and is situated south of Turkey. The two main mountain ranges are the Pentadactylos in the north and the Troodos in central and south-western part of the island. Between them is the fertile plain of Messaoria.
Cyprus has long been a crossing point between Europe, Asia and Africa and still has many traces of successive civilisations – Roman theatres and villas, Byzantine churches and monasteries, Crusader castles and pre-historic habitats.
The island’s main economic activities are tourism, clothing and craft exports and merchant shipping. Traditional crafts include embroidery, pottery and copperwork.
Traditional local dishes include the meze – a selection of appetizers served as a main dish, halloumi cheese and the zivania schnapps.
Since Turkey occupied the north of the island in 1974, the Turkish Cypriot and Greek Cypriot communities have been separated by the so-called Green Line.
Cyprus is well known as the island of Aphrodite, the goddess of love and beauty, who, according to legend, was born here.
In modern literature, names such as Costas Montis (poet and writer) and Demetris Gotsis (writer) stand out, while Evagoras Karageorgis and Marios Tokas are well known for their musical compositions.
The area of the Republic of Cyprus under government control has a market economy dominated by the service sector, which accounts for four-fifths of GDP. Tourism, financial services, and real estate are the most important sectors. Erratic growth rates over the past decade reflect the economy's reliance on tourism, the profitability of which can fluctuate with political instability in the region and economic conditions in Western Europe. Nevertheless, the economy in the area under government control has grown at a rate well above the EU average since 2000. Cyprus joined the European Exchange Rate Mechanism (ERM2) in May 2005 and adopted the euro as its national currency on 1 January 2008. An aggressive austerity program in the preceding years, aimed at paving the way for the euro, helped turn a soaring fiscal deficit (6.3% in 2003) into a surplus of 1.2% in 2008, and reduced inflation to 4.7%. This prosperity came under pressure in 2009, as construction and tourism slowed in the face of reduced foreign demand triggered by the ongoing global financial crisis. Although Cyprus lagged behind its EU peers in showing signs of stress from the global crisis, the economy tipped into recession in 2009, contracting by 1.7%, and has been slow to bounce back since, posting anemic growth in 2010-11 before contracting again by 2.3% in 2012. Serious problems surfaced in the Cypriot financial sector in early 2011 as the Greek fiscal crisis and euro zone debt crisis deepened. Cyprus's borrowing costs have risen steadily because of its exposure to Greek debt. Two of Cyprus's biggest banks are among the largest holders of Greek bonds in Europe and have a substantial presence in Greece through bank branches and subsidiaries. Cyprus experienced numerous downgrades of its credit rating in 2012 and has been cut off from international money markets. The Cypriot economy contracted in 2012 following the writedown of Greek bonds. A liquidity squeeze is choking the financial sector and the real economy as many global investors are uncertain the Cypriot economy can weather the EU crisis. The budget deficit rose to 7.4% of GDP in 2011, a violation of the EU's budget deficit criteria - no more than 3% of GDP. In response to the country's deteriorating finances and serious risk of contagion from the Greek debt crisis, Nicosia implemented measures to cut the cost of the state payroll, curb tax evasion, and revamp social benefits, and trimmed the deficit to 4.2% of GDP in 2012. In July, Nicosia became the fifth euro zone government to request an economic bailout program from the European Commission, the European Central Bank, and the International Monetary Fund - known collectively as the "Troika". Negotiations over the final details of the plan are ongoing.
Source: European Commission, CIA - The World Factbook