Friday August 1, 2014 Search
Weather | Athens
31o C
24o C
News
Business
Comment
Life
Sports
Community
Survival Guide
Greek Edition
Desperate for bailout, Cyprus plays risky geopolitical game

By Peter Apps & Henning Gloystein

As it tries to play Russia off against Europe to salvage its economy, Cyprus has embarked on a high-stakes poker game that could see almost everyone lose.

Its banks shattered by exposure to Greek debt, the island state urgently needs a way of bailing out its financial system.

Cypriot policymakers hope they can begin to monetize as yet undeveloped offshore gas fields and position themselves as a vital source of energy for Europe.

However, such income is still years away and delusions of becoming the Qatar of the eastern Mediterranean in the 2020s may prompt Cyprus to overplay its hand now.

In the coming days, Nicosia may have to choose between a European bailout that punishes savers - including both ordinary Cypriots and much richer Russian investors - and a deal with Moscow with as yet unknown strings attached.

At worst, it could emerge with its financial system - by far the biggest contributor to the economy - in ruins along with relations with its closest allies.

Cyprus has always been complicated, said James Ker-Lindsay, a senior fellow at the London School of Economics and expert on the 50-year-old conflict between Greek and Turkish Cypriots. But this is by far the most complex it has been.

They are in trouble. They may not want to make these decisions, they know they have to.

The implications go well beyond Cyprus. Images of shuttered banks and queues at cashpoints could spark bank runs elsewhere in Europe, endangering the stability of the single currency.

In the background, a long-simmering conflict between the Greek Cypriots in the south and the Turkish Cypriots in the north of the divided island worries the rest of the region.

Greek Cypriot officials hoped speeding up gas exploration would help them out of a financial hole. But in doing so, they have raised tensions with the Turkish Cypriots who want a joint approach and a share of the revenue.

Turks and Greeks, Israelis and their neighbors are all discovering potential reserves along their disputed borders.

In Washington and Brussels, there are fears that increasing strains between Cyprus and Turkey could lead to confrontation.

Cyprus may set the tone for the rest of the eastern Mediterranean, says Eric Thompson, director of strategic studies at the Centre for Naval Analyses, a US government-funded agency that advises the US military.

It is where the financial crisis and the gas issues come together. And it is also where they become immediately militarized.

Still betting on Europe

So far, some 200 billion cubic meters of natural gas worth $80 billion at current prices have been discovered in the Aphrodite gas field in Cypriot waters, although the figures still have to be audited.

That would be enough to cover around 40 percent of the European Union's annual gas consumption. Cyprus hopes to start exporting in 2018, but energy analysts say extracting the gas will prove more costly and slower than Nicosia thinks, and Cypriot supplies may run into a global glut, with shale gas plentiful by then in North America, Russia and even Europe.

Successive Cypriot governments have viewed closer ties with Europe as central to their strategy to hold back Turkey and prosper as a bigger regional player.

Working closely with Israel, they aimed to sell eastern Mediterranean gas to a Europe keen to wean itself off dependency on sometimes politically unreliable supplies from Russia.

Cypriot officials say European firms were deliberately prioritized over Asian and other rivals in granting new drilling rights, with the newly elected government of President Nicos Anastiades keen to lean further towards Europe.

That, one official told Reuters last week, could extend to easier access to Cypriot military bases for any European military operations.

Many western states have used the island as a logistics hub to support operations in Iraq and Afghanistan. Former colonial power Britain retains two sovereign bases there but refrained from using them for air strikes on Libya in 2011 out of sensitivity to Cypriot opposition.

The bases are also a listening post for eavesdropping on communications around the Middle East, although intelligence satellites have made such outposts less important.

Until news of Saturday's bailout broke, most Greek Cypriots would have endorsed ever closer European relations.

But with the initial bailout terms - which would have seen even the smallest savers lose more than six percent of their deposits - denounced as a little better than robbery, anger at the EU and Germany in particular has soared.

Having committed billions to bailing out other fringe euro zone economies, northern European taxpayers have little appetite for more. That is especially true for Cyprus which Slovakian Finance Minister Peter Kazimir told reporters has a business model based on low taxes, network of lawyers and accountants, as well as hidden 'shadow' companies.

Worried by what it sees as an increasingly assertive Russia, some believe Germany is hoping a bailout will ultimately reduce Moscow's influence on the island and elsewhere in Europe.

If recent days are anything to go by, however, it may have had the opposite effect.

Cyprus is not the first indebted European island to turn to Moscow in hope of help in a financial storm. Iceland did so in 2008 as its currency and banking system imploded, angering allies who saw the NATO member as trying to sell itself out to Russian interests barely a month after the Georgia war.

In the event, Russia did not bite, preferring to leave the struggling country to the International Monetary Fund and European Union. Cyprus, however, has long had closer ties with Moscow based on business interests, a shared antipathy towards Turkey and similar Orthodox Christian faith.

What price from Moscow?

No sooner had news of the bailout terms broken on Saturday than rumors began to circulate suggesting that Russia - and gas giant Gazprom in particular - might offer an alternative deal.

Gazprom denies any such plan. But a host of ideas are now circulating in Moscow and Nicosia, many of them complex and involving gas fields, Cypriot banks and real estate.

Russia could certainly be attracted by access to Cypriot gas, tightening its grip on European supply.

A strategic relationship with Cyprus could make it harder for Western states to use the bases for any military action in Syria, and even offer the Kremlin an alternative Mediterranean port should ally Bashar al-Assad lose his civil war.

Whether such a deal would work as well for Cyprus, however, is another question. Barred from NATO by a Turkish veto, the island was officially "unaligned" during the Cold War but has shown little appetite to be a direct Russian satellite.

A bailout from Moscow might solve the immediate banking crisis but greater Russian sway over Cypriot banks could scare off their Russian clients. Many moved money to Cyprus precisely to avoid unreliable Russian banks, rapacious tax officials and the reach of the Russian state itself.

Fed up with bailing out Mediterranean states and perhaps confident they can ring fence collapse in Cyprus - which makes up less than 0.2 percent of the Eurozone economy - European powers may decide they can afford to let Cyprus fail.

How bad a Cypriot bankruptcy might be for the rest of Europe is, as yet, far from clear.

Earlier this week, one London-based fund described the Cyprus bailout as the euro zone's Franz Ferdinand moment, comparing it to the assassination of an Austrian archduke in Sarajevo that sparked world war in 1914.

That might be an overstatement, said Fiona Hill, a former senior official on the US National Intelligence Council and now head of the Europe Program at the Brookings Institution.

But it's a very serious situation. You went to bed on Friday night thinking that the Eurozone would survive and woke up on Saturday (after the bailout) wondering how it can.

ekathimerini.com , Thursday March 21, 2013 (10:00)  
In trying to conquer, Putin unites Europe
Our own worst enemies
Summer turbulence
Capital upgrade
Human rights watchdog criticizes decision to file Farmakonisi case
Europe's top human rights official has criticized a decision by a Greek prosecutor earlier this week to shelve the investigation into the deaths of 11 immigrants who drowned during a controv...
Greece evacuates embassy staff, foreign nationals from Libya
Greece safely evacuated embassy staff and more than one hundred Chinese and European nationals from Libya early on Friday with a navy frigate sailing back to the Greek port of Piraeus, its D...
Inside News
Greek exporters worried about impact of Russia sanctions
The Panhellenic Exporters Federation (PSE) has warned the European Commission against the impact of European sanctions against Russia on Greece's exports. The European Union on Tuesday agree...
Traders unhappy with turnover
Three weeks into the summer sales, traders say that purchases are not satisfactory. Shopping levels appear to be lower than during the same period last year, or on the same level at best, ev...
Inside Business
SOCCER
One win and one loss in Europa League
Greece had a hit and a miss in the first-leg games for the third qualifying round of the Europa League on Thursday, as Atromitos scored a 2-1 win at Sarajevo while Asteras Tripolis lost 1-0 ...
SOCCER
Goalless draw at Liege puts Greens in driving seat
Panathinaikos got the upper hand in the battle for entry to the Champions League playoffs after snatching a goalless draw at Standard Liege on Wednesday. If anything, the Greek cup holders m...
Inside Sports
SPONSORED LINK: FinanzNachrichten.de
SPONSORED LINK: BestPrice.gr
RECENT NEWS
1. Human rights watchdog criticizes decision to file Farmakonisi case
2. Greek exporters worried about impact of Russia sanctions
3. Greece evacuates embassy staff, foreign nationals from Libya
4. One win and one loss in Europa League
5. Greece to help hundreds of Chinese leave Libya
6. Traders unhappy with turnover
more news
Today
This Week
1. Greece evacuates embassy staff, foreign nationals from Libya
2. Greek exporters worried about impact of Russia sanctions
3. Human rights watchdog criticizes decision to file Farmakonisi case
4. Motorists refusing to pay tolls on Corinth-Kalamata highway to be monitored
5. Euro flows reveal shift in sentiment as losses mount
6. Greece may ignore EU and lower energy costs for business, says minister
Today
This Week
1. Quadriplegic woman on life support 'dies due to unpaid power bills'
2. Wine cup used by Pericles found in grave north of Athens
3. Defense Minister Avramopoulos to represent Greece at European Commission
4. Worlds largest solar boat on Greek mission
5. Greece names fifth privatization agency chief in four years
6. What lessons can we draw from antiquity?
Find us ...
... on
Twitter
... on Facebook
About us  |  Subscriptions  |  Advertising  |  Contact us  |  Athens Plus  |  RSS  |   
Copyright 2014, H KAΘHMEPINH All Rights Reserved.