More about that common foreign policy

One of the most remarkable aspects of the entire Russian/Ukrainian/anyone else who is on the Russian border crisis has been the irrelevance of the EU as an entity. Undoubtedly that is why there are these strenuous efforts being made on both sides of the argument to talk up its role either as the initiator of one particular stage of the crisis (is that hysterical laughter I hear from the Kremlin?) or as the obvious solution to it (and that is definitely the sound of bemused silence).

So, assuming that for once the EU has some kind of an idea of what its policy is (a tall assumption) do we actually have countries falling into line with it? Well, no, since you ask, we don't.

There is the bizarre behaviour of the  Hungarian Prime Minister Viktor Orbán who is playing some kind of a convoluted game with Russia, the rest of the EU and his own people, relying, on assumes on that well-known Hungarian ability to come out ahead in a revolving door even if one went in behind someone. This may be a heresy but I have to admit that I am not sure that always works.

Then there is Greece that every now and then threatens to subvert the sanctions on the grounds that they do not like what the EU is doing to a fellow Orthodox country or because the Germans owe them reparations or because they are just feeling bloody-minded. None of these threats have actually come to anything yet.

Italy is making unhappy noises and, in connection with that let me point to an interesting piece of information in the recent House of Lords Report on the EU and Russia (ch. 2 para. 19):

The exposure of UK banks to Russia is fairly low at $14.2 billion, below that of France ($47.7 billion), Italy ($27.7 billion) and Germany ($17.7 billion), all of which have much smaller banking sectors.

Though there has been "a marked decrease in the exposure of European banks to Russia between the third quarter of 2013 and the second quarter of 2014", these are worrying figures for France and Italy.

We also have a problem with Cyprus. This was discussed in the House of Lords on March 10 when Lord Sharkey asked HMG

what discussions they have had with the Governments of the Republic of Cyprus and other European Union member states about the proposal to establish a Russian military base on Cyprus.

Well, indeed. An interesting problem in view of the EU trying to keep all its little soldiers in one box. Could it be that the member states do not think their interests are quite unanimous?

Baroness Anelay of St Johns replied:

My Lords, we have been and remain in regular discussion with the Republic of Cyprus about security and defence matters, and have been briefed on the agreement signed in Moscow. The Cypriot Government have assured us that these agreements represent a continuation of existing arrangements. We continually stress to our EU partners the need for EU unity in the face of Russian aggression in Ukraine.

Lord Sharkey's follow-up question was a little more pointed though, as a matter of courtesy, he ought to have thanked the Minister for her reply:

The fact is that, in return for debt relief, Cyprus has formalised an agreement to let Russian warships use its ports. There is also talk of use of an airbase at Paphos, which is 40 miles from our base at Akrotiri. President Putin has said that this deal should not cause any worries anywhere. Does the Minister agree with President Putin or does she agree with the United States State Department’s comment on the Cyprus deal that now is not the time to be doing business as normal with Russia?

Not quite, said the Minister:

My Lords, I have made it clear in this House before that it cannot be business as usual with Russia while it maintains its position over Ukraine, where it has illegally annexed the Crimea and intervened in another state’s sovereign lands. My noble friend refers to a situation in the Republic of Cyprus that I do not recognise. When speaking to Russian media, President Anastasiades explicitly ruled out the use of Limassol port for military purposes. Foreign Minister Kasoulides also said to the press, after the February EU Foreign Affairs Committee meeting in Brussels, that there was no question of Russian air or naval military bases on the soil of Cyprus. It is a continuation of existing agreements.

Subsequent comments referred to other countries that are falling out of line with no solution to the problem being proposed.

Well, that was a success

EUObserver reports:

As a result of European leaders harsh bailout deal for Cyprus in March including a forced conversion of Bank of Cyprus deposits into shares, Russians will end up with a controlling stake in the bank, reports the New York Times. Russians will own roughly 60% of the bank’s new shares.

Here is the original story in the New York Times. 

Some headlines I liked

First about Cyprus. There really is very little I can add to the avalanche of analysis that has hit the fan in the last couple of days except to suggest that maybe, just maybe those oligarchs knew in time to withdraw their money and take it somewhere else. I am guessing, mind you, but there are other countries near there, such as Turkey and Turkish Cyprus. It's the others wot got caught.

Anyway, here is my favourite headline on the subject: RAF plane flies to crisis-hit Cyprus with a MILLION euros for British forces in case cash machines stop working. Another Berlin air lift, forsooth. Except that this crisis was not created by the enemy outside but the enemy within.

Here, on the other hand, is the story as it is developing with the Cyprus Parliament rejecting legislation on the levy:

Cyprus’s finance minister arrived in Moscow on Tuesday night to try to wrest vital economic assistance from the Kremlin as his country’s parliament rejected a €10bn EU-led bailout that requires €5.8bn to be seized from Cypriot bank accounts.

The 11th-hour attempt to tap funds from Russia as an alternative to the deposit levy stunned leaders in Brussels, who said they were taken aback by the resistance of Cypriot lawmakers to shifting the tax’s burden exclusively on to deposits over €100,000 – many of which are held by wealthy Russians.

What will the Russians demand as guarantee? And should they not try to tap Belarus as well? It seems that some of Luakashenka's cronies may have been caught out. Well, like the Russian ones, possibly. Then again, maybe not. I am still guessing.

As to the other big story, the intended licensing and regulation of the media (not just the press, as the newspapers keep saying), I liked several headlines but this one really takes the biscuit. Peter Oborne has suddenly woken up to the endemic nastiness of the NUS. That's it, he says, he is resigning from the NUS.

It is a sad moment, but today I have decided to resign from the National Union of Journalists. It is the second time I have done so. The first was in the mid 1980s when (as a young journalist who was very proud to be an NUJ member) I was appalled to read in the NUJ newspaper an account of a trip by some union officials to Moscow. They favourably compared free speech in Soviet Russia to free speech in Britain. It was sickening, and showed a catastrophic failure to understand free speech and why it matters. I felt it was morally wrong to remain a member of such an organisation, so I quit.

He then went back, for whatever reason, but has now once again decided to leave.

For some time, however, I have been increasingly disturbed by the NUJ's growing sympathy for state control over the press. If the union represented journalists, as it claimed to do, it would have been up in arms at yesterday's squalid deal which has granted politicians power over newspapers for the first time in more than 300 years. It would have fought all the way. Instead the NUJ has been a largely silent and shamefaced collaborator with Hacked Off and its rich and powerful backers. I tried to warn the union's secretary Michelle Stanistreet about this, but she would not listen. Yesterday she threw her weight behind the stitch up between the political parties.

I should have thought the two attitudes are two sides of the same coin but that is probably why I am not a highly paid hack.

Oh and how can one resist this headline on Guido Fawkes's blog? Among the various donors for that nauseating organization of tenth-rate celebrities outraged that they cannot control their own publicity, there is ... a Russian oligarch, to wit Yevgeny Lebedev, owner of the freebie Evening Standard, where he has a weekly vanity column (well, he is bankrolling the rag and it is no worse than other columns by Polly Filler and her like of both genders) and of the Independent.

The elite club of multi-millionaires with an axe to grind have confirmed however that they are “due to receive soon a grant from the Journalism Foundation of over £20,000″. The Journalism Foundation was former Indy editor-in-chief Simon Kelner’s £600,000 vanity project bankrolled by billionaire Russian oligarchs and Indy owners Alexander and Evgeny Lebedev. The former KGB agent set up the Foundation to promote “free and independent journalism”, pulling the plug on it after less than a year. Seemingly not before they channelled a chunk of the cash to those freedom lovers Hacked Off…

This gets funnier by the minute.

Cyprus will probably be bailed out

Despite the marked reluctance shown earlier to bail out Cyprus and its banking sector to the tune of €17.5 billion, it would appear that, as predicted, German opposition to that course of action is lessening.

[P]ressure to reach a deal on Cyprus had grown from euro-zone member states, the European Commission and the European Central Bank. There is concern in Brussels and across Europe that were Cyprus to be allowed to slip into bankruptcy, it could reverse the recent progress that has been made in coming to terms with the euro crisis.

Apparently, it is not a solution anyone is looking for but merely a coming to terms with, which shows some rationality in the approach and an acceptance of the fact that there can be no solution.

Still, the bailout is not without risks. Cyprus is in urgent need of up to €17.5 billion ($23.6 billion) in emergency financing, primarily to prop up its ailing and outsized banking sector. But a bailout of that size would be roughly equivalent to the country's annual gross domestic product and would increase the island nation's sovereign debt load to a potentially unsustainable level. The International Monetary Fund had even demanded in December that the aid package be paired with a significant debt haircut.

There have been recent indications that the final bailout price tag might ultimately be lower. For one, Nicosia has said that its banks do not need as much help as had originally been estimated. For another, the Associated Press reported on Tuesday that Russia will very likely take part in the bailout package, lessening the burden on Europe.

That means the Russians are softening as well or someone has explained to the Russian government that Cyprus is essential for the welfare of the oligarchs who are, in turn, supportive of Putin. (Others are either abroad or in Siberia.) German Finance Minister Schäuble remains opposed to the bailout package but he may be outvoted at the next meeting of Finance Ministers.

Still, Schäuble isn't the only one in Berlin with his doubts. The Cyprus bailout, once it is agreed to by European finance ministers in Brussels in the coming weeks, must also be rubber-stamped by German parliament. And that, particularly with a general election coming in September, is no longer a foregone conclusion. Chancellor Angela Merkel's coalition partners, the business-friendly Free Democrats, have voiced significant skepticism of a Cyprus bailout and could see a no vote as a way to sharpen the party's extremely dull profile.

There are also several rebels within Merkel's own Christian Democratic Union (CDU) who are likely to vote no. Christian von Stetten, chairman of the CDU parliamentary caucus that advocates for small- and medium-sized businesses, said he would oppose an aid package for Cyprus if it came to a vote. "Cyprus applied for aid seven months ago, and since then it has been staying afloat with payments from the Central Bank of Cyprus," Stetten told SPIEGEL ONLINE. He added that the country's actions since then have been carefully scrutinized, and that "if a majority decides to transfer money to Cyprus from the bailout fund, I wouldn't be able to understand that." He said he would vote against any motion to grant Cyprus aid in parliament.

My guess is that the deal with go through and, naturally, will solve nothing. The time for the German rebellion is not yet. Besides, they may not be able to afford it. Whether the countries that are being bailed out can afford the process is another question.

More on Cyprus

Couple of articles in Der Spiegel that might be of interest or amuse readers of this blog. Spiegel Staff write collectively on the problem that Cyprus is causing, the opposition to the bail-out in Germany itself and other eurozone countries and Chancellor Merkel's visit on Friday.

The financial woes of Cyprus are a thorny issue for the German government, the mood in global financial marks and, most of all, for Europe's bailout policy. Ever since last fall, when SPIEGEL published a report by Germany's Federal Intelligence Service (BND) on money laundering in Cyprus, it has been clear that an aid program for the country would also benefit Russian oligarchs who have deposited billions in assets from dubious sources on the Mediterranean island. According to the BND analysis, if Brussels released the requested aid money, German taxpayer funds could very well be used to protect the illegal assets of Russian business magnates.

This realization triggered hectic activities in various places. In Brussels, the Euro Group of euro zone finance ministers postponed its decision on the bailout program last week, while donor countries like Germany, Finland and the Netherlands voiced concerns. In Cyprus, the government is trying to show it's tough on tax dodgers and money laundering. "Cyprus is no tax haven," Finance Minister Vassos Shiarly insists in an interview with SPIEGEL. 

The euro rescuers face a dilemma. On the one hand, they want to prevent the country from going bankrupt. On the other hand, they lack the support of a majority of member states for an aid program that would mostly benefit rich Russian tax fugitives.

The tricky situation is prompting European leaders to do what they always do when a crisis comes to a head: play for time. They want Nicosia to satisfy additional conditions in the fight against tax dodgers and economic criminals. At the same time, Brussels is hoping that current President Dmitris Christofias will be ousted in the February election.

There is also an interview with the Cypriot Finance Minister, Vassos Shierly,  in which he "denies accusations that Cyprus encourages worldwide money laundering and is attracting investment by means of tax dumping". Not sure what he means by tax dumping but the money laundering has been reasonably well proven.

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.

And so it goes

The news from Cyprus (well, the southern part of it that is in the EU and, indeed, the euro, is that its government has resigned under a great deal of political pressure as it is expected to ask for a bail-out. To be absolutely fair, the reason for the downgrading by Moody, the threatened bail-out and the promised wide-ranging reshuffle of the government were all caused by a massive explosion.

Christofias's centre-left administration has faced unprecedented public fury from the blast, caused when a cargo of confiscated Iranian munitions exploded next to the island's largest power plant, killing 13 people.

Cypriots have taken to the streets in their thousands to demand the resignation of Christofias and his government.

On Wednesday, Moody's downgraded Cyprus to three notches above junk status due to the fiscal fallout from the blast, adding to the strain on the economy from its exposure to Greek debt.

Since the blast, markets have trained their sights on the east Mediterranean nation as a possible fourth recipient of a euro zone emergency rescue after Greece, Ireland and Portugal, and political wrangling now risks derailing much-needed economic reforms.

The island's central banker Athanasios Orphanides has warned that without urgent action, Cyprus could be forced into seeking a bailout.

There have been calls for Christofias, a Communist whose term expires in 2013, to step down, but that appears unlikely. As leader of Cyprus's dominant Greek Cypriot community, he leads reunification talks with estranged Turkish Cypriots to clinch a peace deal to end decades of conflict. The absence of such a deal is harming Turkey's bid to join the EU.

In the circumstances, Turkey may not be all that interested in that bid, though, clearly its government goes through the motions.