Saturday, January 12, 2013

We have a problem with Cyprus

Come February 10 there will be another country whose bail-out will  be discussed: Cyprus. There will be certain problems with the whole discussion. Not just the usual problems - corruption and political stagnation - but an extra one. Just who will be receiving the €17.5 billion (as Wolf Richter points out, this is about the equivalent of the country's GDP) that the country is requesting from the EU or, maybe, just the eurozone but there is usually a way of drawing other member states in?
A “secret” report by the German version of the CIA, the Bundesnachrichtendienst (BND) was leaked last November, revealing that any bailout of Cyprus would benefit rich Russians and their €26 billion in “black money” that they deposited in the now collapsing banks. The report accuses Cyprus of creating ideal conditions for large-scale money laundering, including handing out Cypriot passports to Russian oligarchs, giving them the option to settle in the EU. Much of this laundered money then reverses direction, turning minuscule Cyprus into Russia’s largest foreign investor.
The assumption is that €12 billion of the requested €17.5 will "go directly to the murky and putrid banks".

Neither German politicians nor the euro-weenies like this idea. Handing over money to the Russian oligarchs is a bail-out too far.
Politicians in Berlin have said they are not prepared to help as long as Cyprus' banking industry lacks transparency. Chancellor Angela Merkel was in Nicosia Friday as Moody's downgraded the Cyprus' credit rating by three notches to Caa3. The mood is tense in Nicosia. Finance Minister Vassos Shiarly said there is only enough money to sustain the economy until the end of March.
What is to be done? Russia, having come to the country's rescue once in the past, will not do so again. Wolf Richter is sceptical:
If Greece is any guide, Merkel will vociferously demand more reforms and transparence in the banking sector. The February 10 deadline might pass. Cyprus will come up with a list of promises. Gradually the rhetoric will change. Words like “progress” will show up. “Black money” will disappear from the media. This might even culminate with a heartwarming meeting in Berlin between Merkel and Christofias. And suddenly, voting against the Cyprus bailout, once a safe bet, will become politically risky. It worked before. It might work again. If not, Cyprus with all its “black money” might become the first Eurozone country to go bust.
How many people can be fooled and for how long?

ADDENDUM: A knowledgeable reader of this blog has commented:
2 factors: (a) Cyprus has a presidential election coming up on 17/24 February. Christofias is not a candidate. It's likely Anastasides (EPP) will win (a potential ally for Merkel). So the change of government - Cyprus is the only EU Member State with a US-style Presidential government - may work in favour of a softening of the language. (b) which country has invested more political capital in building up and assisting the Russian oligarchs? Surely that's Germany. Can hardly expect them to complain now.
For all of that I fully expect the Germans to complain though, perhaps, not Chancellor Merkel.


  1. OT (sorry), but a post here ( ) you might like on Paul Ehrlich. A gentleman who has been banging the drum for the imminent global collapse of civilization for over 40 years and has now been made a fellow of the Royal Society.

  2. Thanks, AKM. I shall certainly read it. Clearly some parts of civilization are more resilient than others in Mr Ehrlich's eyes.

  3. Anybody who has been on holiday to Cyprus will know that the Russians have virtually taken over the place.