The financial crisis in Cyprus has made headlines in Russia for days. At first, the Russian media were surprised by Europe’s seemingly irrational and destructive approach to the relatively small Cypriot problem, but the surprise soon turned to anger at the fact that Europe had informed Russia about its decision post factum and neglected to consult it, even though it was aware of Russia’s interests in Cyprus.
The passions gradually cooled. Some Western journalists were even surprised that instead of threatening retribution after the bailout plans were made public, the Kremlin instructed the Russian Finance Ministry to restructure Cyprus’s debts and to help the EU and Cyprus settle the crisis.
This approach contrasts sharply with the mood last week, when Cypriot Finance Minister Michael Sarris returned from Moscow empty-handed. Many suspect that a deal involving Russian interests was made some time in between. This may be the case, but we will never know for sure, because Vladimir Putin and Jose Manuel Barroso discussed the situation behind closed doors. It is more likely that the Kremlin reviewed the situation and came to an adequate conclusion.
Moscow is not fighting Brussels over influence in Cyprus, which does not have to choose between Russia and the EU, as some journalists with a penchant for dramatization wrote last week. Cyprus is part of Europe’s political and economic landscape, and even if it decides to leave the euro zone, which remains a possibility, it will not have to ply the high seas in search of partners.
Russia knew that assuming responsibility for trying to save Cyprus after the EU and Germany had presented their ultimatum would complicate the political situation and possibly deprive Russia of its investments in Cyprus for good.
Cyprus’s promises of supplying assets in return for Russian help were not entirely honest. If the republic were to default, its assets would become less valuable, but on the other hand, the EU would have likely prevented Cyprus from handing its assets over to Russia. Therefore, Russia decided to wait for an agreement between Cyprus and the EU.
It was also a wise decision to offer constructive assistance. Moscow is not interested in Cyprus’s financial collapse – at least not in the immediate future – not so much because of its assets, but because of Cyprus’s role in organizing financial flows into the Russian economy. At issue are not the criminal origins of these funds, but the drawbacks of Russian legislation that make it easier for businesses to work through offshore accounts.
Russia has unwittingly played a major role in settling the crisis in Cyprus, whose creditors acted tough because of Russian assets and companies registered in that offshore haven. It is difficult to imagine the EU proposing to confiscate part of bank deposits in any other country. But the presumption that “dirty” Russian money allegedly constitutes the bulk of Cyprus’s assets encouraged the EU to insist on that unprecedented measure. Europe claimed that foreign crooks, rather than honest Europeans, would suffer as a result. This is a vivid example of dirty political technologies being put to use.
It appears that Russia, which is officially Europe’s strategic partner, is seen as an aggravating circumstance and an additional problem, rather than as a means of resolving the issue. It is noteworthy that this solution was mostly advocated by Germany, which has been promoting Russia’s interests in Europe. Could this be an element of Angela Merkel’s election campaign? Russia’s distorted image and reputation in Europe have become material factors influencing practical economic and political decisions.
The Cypriot problem is not only important because of the decision to make honest private depositors pay for the irresponsible policy of the national government or supranational institutions – although this decision has come as a shock. This is the first time that a sovereign government has been not simply ordered to change its economic policy, as in the case of Greece, Ireland and Spain, but to abandon the very economic model of its existence. The decision on Cyprus did not aim to secure financial rehabilitation and budgetary discipline or to cut spending. German officials said openly that the Cypriot model is unviable, and hence must be dismantled. This explains the merciless ultimatum and the refusal to negotiate a compromise, although the €17 billion Cyprus has asked for is peanuts compared to the hundreds of billions spent on bailing out Greece and other troubled states.
The architects of European politics have probably seen, at long last, that cosmetic measures will not help and that the system will collapse without a thorough upgrade. Unfortunately for Cyprus, it has been chosen as a site for testing this new approach, which is based on a grim choice: either honor your donors’ (that is, Germany’s) instructions, or jump into the financial abyss. The example of Cyprus is designed to show all potential losers that the time for games is over and that it’s time to obey.
Germany is apparently tired of trying to rectify the mistakes of the 2000s, which saw a slew of hasty and foolish decisions to promote and expand integration. But dissatisfaction with Berlin’s diktat has grown exponentially and will continue to grow, because Germany is only now emerging from the shadow where it has been hiding since the mid 20th century. It is impossible to say if this new age will lead to the development of a powerful European core, which will dictate its rules to the periphery, or if the EU will split into opposing groups. But everyone senses its momentous importance.
Russia’s plans also depend on what happens in the EU. The Cypriot crisis has highlighted two elements of relations in Europe: the very strong, mutual dependence of Russia and the EU, and also the lack of mechanisms for their normal interaction. Despite a large number of formal cooperation institutions, which officials love to pay tribute to, tensions between Russia and the EU have grown in a situation that has a direct bearing on their interests, whereas they should have held consultations to search for a joint solution to the problem at hand.
The relations that these institutions have been developing over the past 20 years resemble an empty nutshell. Its contents have dried up, and it is unclear if a new goal can be found for these institutions. There is hope, though, that now that honest efforts are being taken to rebuild Europe, these cooperation institutions will be overhauled to serve the interests of all closely interconnected parties, rather than continue to simulate progress for the benefit of officials, as has so often been the case in the past.