Europe poised between union and hegemony

French and German overriding of the European Commission over the Stability Pact can be seen, ten years later, to have been disastrous. A vision more powerful, more engaging, more profound than “common interest” is now required if Europe is to survive, and divided Cyprus is a test case.

Costa Carras
10 April 2013
merkel europe

Flickr/EPP. All rights reserved.

Part One: the Eurozone

Up until about 1990 significant ethical elements characterised the European Movement. One was the struggle to forgive, exceedingly difficult for those like the Gypsies and Jews who had been subjected to genocide in the Holocaust, and difficult enough for those whose countries had been subjected to military occupation. Despite experiences far more traumatic than any being endured today, forgiveness was gradually both offered and received. As the waters of forgiveness flowed, both Europe and the European idea flourished.  

Unquestionably the process was initially accelerated by the harsh challenge of another ideology, homegrown, exported and re-imported by the Soviet Army into Eastern Europe. This outside challenge in fact also added a further ethical element to European collaboration, one which was elaborated in the language of liberty and human rights. Human sympathy and solidarity were joined together with collaboration in the common cause of opposition to oppression and thus became as important as common economic interests in the building of postwar Europe.

Such ethical elements were however always less emphasised than common economic interests, particularly after the downfall of communism of 1989-1991 when everything seemed to be going swimmingly – except in the cruelly war-torn region of Europe’s south-east. In the then prevailing atmosphere of free-market triumphalism, ethical considerations were increasingly considered unnecessary baggage in the pursuit of individual, corporate and national self-interest.

Thus the atmosphere of economic and political life coarsened, just as the global transfer of technology and expertise was increasing competition from developing countries, thereby placing a premium on social discipline and effective governance in the developed world. Meanwhile the increase in environmental stress, most dramatically evidenced by climate change, raised far more fundamental issues of restructuring the economic model itself, issues all too often ignored or even scorned.

Nonetheless the ‘original sin’, so to speak, which began the slow, ongoing, but hopefully still reversible, process of European unraveling, came in 2003, after the introduction of the euro in 1999-2002.

The euro unravels Europe

The euro was a symbol of common economic interests and the expression of hope for international financial power as a reserve currency. It suffered however, as many, particularly British and American observers had argued, from the evident incoherence of the operation of a common monetary area in the absence of a common fiscal policy. The defect was identified in good time: the European Commission was set to be the watchdog, through an agreed Stability Pact Mechanism.

When in 2003 the moment came for the watchdog to bark… the thieves shot him, everyone else pretending not to hear the shots. National sovereignty prevailed over firm European commitments even when nation states were most clearly at fault.   This would not have happened had smaller countries been the sole offenders; in this instance however, the pride of France and Germany were at stake, countries which ironically in the same year challenged US and British contempt for the UN and international law over the invasion of Iraq.

The US and British intervention in Iraq proved disastrous for the west’s reputation in the Middle East.   The French and German overriding of the European Commission over the Stability Pact can be seen, ten years later, to have been almost as disastrous for Europe.  Most of the countries in breach of the Stability Pact took the Commission’s forced retreat as a permit to continue past policies. Chancellor Schroeder’s SDP/Green coalition in Germany was an exception.  A rapidly strengthening competitive position led to huge German trade surpluses in relation to other Eurozone states.   The credit in German eyes, correctly, went to Germany.

When the Greek crisis broke in 2009-2010 the by then rightwing German coalition (CDU/FDP) persuaded Northern Europeans that fiscal irresponsibility and only fiscal irresponsibility, bolstered by political and ethical irresponsibility, was the sole cause of the problem.  Even then the examples of the US, Ireland and Spain suggested the need for a more subtle analysis.  Over time, as one country after another has had to be revived from collapse, it has become clear that the problems are wider and deeper than fiscal irresponsibility.   In the meantime, however, many Germans have become persuaded that austerity is an economic panacea and that Germany is being exploited by the European periphery.

Meanwhile in Greece, for two years after genuine statistics replaced doctored ones, the majority of citizens were in a state of denial, leading to delays in carrying out some essential structural reforms.    Greek citizens have suffered the consequences of this denial.   Though family, neighbours and Church have so far kept the social fabric intact, a whole generation is adrift, without work or purpose.  Germans, for their part, have largely failed to examine the role played by foreign, notably German, companies in the Greek crisis of governance.   Some of them were clearly involved in systematic and very profitable corruption.

Proposals should long since have been put forward to protect one of the EU’s greatest achievements, the single market, from the distortions inevitably created by institutionalised corruption in several member states.   No such proposal however has yet appeared on the public agenda.

Cyprus condemned without a hearing

Where Cyprus is concerned, what occurred is considerably worse.   Media in the northern countries, clearly relying on “unofficial” briefings by officials, allowed themselves not just to accuse but to convict Cyprus banks of money laundering. These reports prepared the ground for the deliberate destruction of one of Cyprus' major service industries while concealing European Commission suspicions of money-laundering elsewhere, including Germany.  This use of the media has demonstrated the depth of the European crisis. Behind talk of solidarity a form of economic warfare is increasingly evident. A vision more powerful, more engaging, more profound than “common interest” is now required, if Europe is to remain a living force.

Clearly even without such evident hostility Cyprus’ banking sector would have suffered a serious blow.   Greek Cypriots found it hard to acknowledge that the very fact that banking and financial services were an eminently rational choice for a small island at Europe’s edge which could not possibly have developed a base in heavy industry(as Slovakia could, to cite but one instance), required a high degree of banking expertise and oversight.   There was no way to avoid a diminution of the sector, even if a banking union had been in operation.   The delay in achieving banking union however has certainly not been the responsibility of Cyprus but of certain northern countries.  One may speculate as to their reasons but not as to the effects of the delay, which are to weaken the EU in general and the economies of southern European countries in particular.

Something needs to be said about the now notorious early-hours-of-the-morning Eurogroup meeting of March 16 which introduced the idea of the seizure of a percentage of deposits even below the guaranteed minimum of €100,000.   This measure, although clearly discussed well in advance in the IMF and Eurogroup and unwisely preferred by the Cypriot leadership, was in the event countermanded as a result of the strength of popular reaction in Cyprus and indeed throughout Europe.   This last is  witnessed by the polite but trenchant criticism from the leaders of all the largest political groups in the European Parliament under the chairmanship of Martin Schultz on March 21. It is worth noting that it was parliamentarians, far more than national officials and bureaucrats, who retained a sense both of the ordinary citizen’s rights and of the reputation of the European Union.

Deposits under €100,000 were in the event secured, but substantial damage has been done even though the second proposal, currently being implemented, is much preferable to the first.

The implications of the first proposal however, carefully noted by the markets, have been:  do not deposit your money in banks of countries where the ECB may tell a government that if it does not attach deposits it will cut off its liquidity. The longer term consequence?   Deleveraging by local banks and hence deeper recession in southern European economies, some movement of funds to banks in northern European countries but far more movement to the Caribbean, to Dubai and to Singapore.


Demotix/Nikos Kapralos. All rights reserved.

Part Two: Cyprus – towards a settlement that is a litmus test for European Union

The handling of the Cyprus financial crisis has damaged the Eurozone as a whole, and naturally will also have economic and political consequences for Cyprus.   A steep depression is certain.  Fortunately Greek Cypriots have become far more realistic than Greeks, because they live under constant military threat from Turkey, whose army occupies more than one-third of the island. Even if Greek Cypriot banking has been decimated, some offshore financial business is likely to continue because the local infrastructure and administration are sound.  And leaving aside any gas deposits that may, hopefully, be developed, Cyprus’ main asset is not only tourism, and certainly not the grossly (if profitably) overdeveloped real estate sector, but rather the high level of education of its citizens. Cyprus has not thus far attempted to imitate Israel by fostering high technology, environmentally oriented and medical research based industries. One must hope this will be the direction a resurgent Cypriot economy will take.

To reach this point Cyprus must of course continue to fend off very considerable political dangers.  In relation to the Republic of Cyprus, Turkey is clearly a hegemonic power, as seen most recently in its contempt for its own signature:  although it specifically agreed to do so when opening EU accession negotiations, it still does not allow Republic of Cyprus vessels to call at Turkish ports.

Many observers have speculated whether now Greek Cypriots will be economically so much worse off that they might reexamine the Annan Plan they rejected in the 2004 Referendum.   There were, in fact, however no less than five versions of the Annan Plan and two of these, specifically the second and the third, were rejected by the late Rauf Denktash, theoretically on behalf of the Turkish Cypriots, effectively on behalf of Turkey.  It was Mr Denktash’s rejection of March 2003, and not any threat of a Greek veto, that was the proximate cause of EU agreement to the accession of the Republic of Cyprus before a settlement.   This led, once negotiations recommenced, to the UN tilting the terms towards Ankara. There followed the Greek Cypriot rejection of the fifth version of the Plan, the reasons for which are almost never analysed by those who use it simply as a weapon in a propaganda war.

There are indeed good reasons why negotiations between Greek Cypriots and Turkish Cypriots should soon recommence. It is not, however, the Greek Cypriots who have held up the negotiating process to date. In fact Demetris Christofias was quite evidently more interested in a settlement than Dervis Eroglu, who indeed had campaigned for the Turkish Cypriot leadership on the basis of support for two separate sovereign states.

The reasons are, first, that Tayyip Erdogan and not the Turkish military is now fully in power in Ankara as he was not in March 2003.  Thus it is important to see whether he is now prepared to make constructive new moves.   Secondly, whereas it is generally agreed that any hydrocarbon resources (so far identified only to the south of the island) belong to all its citizens, unless and until there is a constitutional settlement, the danger remains that either the Turkish Cypriots will be excluded from any benefits or the already considerable tensions in the region may further mount. Fortunately it is inconceivable any benefit can accrue before 2018 so there is adequate time for a negotiation.  

Nikos Anastasiades is well aware that the easiest way to get the hydrocarbons to market is via Turkey. He finds himself, however, with his back to the wall, after his mistakes and the treatment he received.   In fact both the main political forces favourable to a settlement, the communist AKEL and the right wing DISY, have been weakened by the financial collapse.  By contrast the Orthodox Church of Cyprus has gained in prestige, which is good for social cohesion but not necessarily good news for rapprochement with Turkish Cypriots. In this context, any plan viewed as a “surrender” to Ankara should be considered a “no-go”.

This is doubtless the reason Ahmet Davutoglu, Turkey's Foreign Minister, has asked for fast-track negotiation and, if it fails, legalised partition for the “TRNC”. A host of UN Security Council Resolutions to the contrary, this is probably too great a blow to international legality for the world’s powers to accept.

The UN has in the past sometimes proven itself malleable to the wishes of the Permanent Five members of the Security Council, not least in the preparation of the final Annan Plan.  The UN’s role in Cyprus however is not one of arbitration but the provision of good offices to Greek Cypriots and Turkish Cypriots in their search for a settlement. This is a feature of the negotiating process that the government of Cyprus will insist must not change, precisely because of its reasonable fears that some major power might again persuade the UN to tilt towards Ankara.

As and when negotiations for a settlement, as opposed to some set of interim measures, do begin, the issues that will decide whether Cyprus can be reunited as a federal democratic state, and a beacon of hope for other suffering and effectively abandoned communities of the Near East, are the following:

(1)   Will Turkish and Greek forces withdraw from the Republic of Cyprus as soon as a security system to safeguard the two communities is in place? The Annan Plan in its final and most unacceptable form had a Turkish contingent remaining for ever, an unacceptable concession to hegemonism. Contrary to some inaccurate reports, it has been demonstrated both by exit polls and by polling surveys that security concerns were uppermost in Greek Cypriot minds when they voted “No”.


(2)   Will the fundamental right of European citizens to appeal to the European Court of Human Rights and the fundamental freedoms of the EU be upheld, even if with temporary derogations in the latter instance? The Annan Plan proposed to overturn the right of appeal to the ECHR, a blow at the very foundations of Europe as established after the Second World War.


(3)   Will a proposed settlement effectively place the main financial burden on the central government of a future federation or the Greek Cypriots, as the Annan Plan did, or will it set out clearly economic prospects, rights and responsibilities in a manner that will enable any settlement to survive?


(4)   Will there be an electoral system that will require Greek and Turkish Cypriot politicians to appeal to the other community so that a bizonal federal system begins operations, as the 1960 constitution did not, with a fair chance of success?


(5)   Will the European Union treat Cyprus as an asset in the most dangerous global stretch on our planet?   

If the European Union does not behave as a genuine Union with genuine solidarity among its members, there is little chance that Cypriots will reunite, because a solid European Union is a basic prerequisite for the operation of a Cyprus settlement.  In the modern, closely interwoven world, attempts to achieve hegemony lead only to the dead-end of conflict and division and an inability to face future challenges.   Cyprus is a good example.   The European Union must not become another.   However unfavourable recent developments, those hoping for a more positive future should not throw up their hands in despair but rather put our full weight behind the EU and a genuine union and against any form of hegemony, anywhere.


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