The Week in the Cyprus Region, 14 Feb 2024
The Week in the Cyprus Region, 14 Feb 2024
Links to regional developments of relevance to Cyprus
Welcome to the Week in the Cyprus Region (formerly Sapienta Cyprus Selection), a selection of links to articles of medium- to long-term relevance to people living and doing business in Cyprus. Topics marked with * will be, or already have been, analyzed in our monthly issues of Sapienta Country Analysis Cyprus. The Week in the Cyprus Region is part of the Sapienta Cyprus Snippets series. Learn more about the different subsections here.
Israel economy*. The rating agency, Moody’s Investors Service, downgraded Israel’s credit rating on 9 February primarily owing to the costs of the ongoing war in Gaza. Israel’s finance minister showed his displeasure about the downgrade. The governor of the Bank of Israel (central bank) said that, while he expected the economy to recover, it was important to address the issues highlighted. Relevance to Cyprus: Israel’s rating is still well above investment grade and much higher than that of Cyprus. Nevertheless, a rating downgrade tends to lead to higher borrowing costs. This could affect tourism, property sales and businesses moving from Israel. Israel rose to second place as a source for tourists in 2023 as Russia dropped to 12th place.
Egypt-Israel relations. The 1978 peace deal between Egypt and Israel is at risk of unravelling. As Israeli forces move ever closer to the border, Egypt is reported to be threatening to cancel the peace agreement. Relevance to Cyprus: the Republic of Cyprus has spent much political capital in recent years building relations with both Egypt and Israel, partly to strengthen its hand against Turkey. A war between Egypt and Israel would be de-stabilizing for the entire region.
EU security. Remarks by the former and potentially future US president, Donald Trump, who suggested that the US would not defend NATO members who did not meet the minimum 2% of GDP defence spending target if they were attacked, have spooked EU capitals. Poland’s prime minister, Donald Tusk, travelled to Germany and France this week to make the case for increasing the EU’s joint defence capacity. Poland has the highest defence spending in NATO, beating even the US according to NATO’s latest figures. Relevance to Cyprus: Cyprus is not a member of NATO but a collapse of NATO would raise the spectre of a renewal of tensions between Greece and Turkey that could easily spill over into Cyprus.
Turkey economy*. As Turkey’s inflation rate hit 64.9 % in January, the new central bank governor, Fatih Karahan, has pledged to maintain a tight monetary policy. The former governor, Hafize Gaye Erkan, resigned on 2 February after only a few months in the job. Relevance to Cyprus: As northern Cyprus uses the Turkish lira, it is also affected by high inflation and the accompanying weak Turkish lira. Inflation in northern Cyprus reached 85.8% in January. In recent years the weaker lira has also encouraged a massive increase in “petrol shopping” by Greek Cypriots on the other side of the divided island.
Have you seen the Sapienta Cyprus Reflections series?
· Green finance: how will it affect your business? 25 Jan 2024
· How to bring the people into a Cyprus peace process, 18 May 2023
· Three mega trends to define the decade, 11 May 2023
· Cypriots and sanctions: lessons for other professionals in Cyprus, 18 Apr 2023
· Cyprus and security: it’s time to change the toolbox, 14 Feb 2023
· What do we know about Turkish Cypriot banks? 4 Jan 2023
· How much is Russian business worth to Cyprus? 12 Dec 2022
· The amazing Cyprus growth machine 17 Nov 2022
You can find a full list of posts here.