Harsh measures imposed on Cypriot political and financial authorities to address bank failures reveal, once again, that the entire architecture of the EU is in tatters. The geopolitics surrounding the Greek Cypriot crisis is pulling the EU further apart and into the unknown.
For the average person, apart from being a popular holiday destination, Cyprus is known as a divided island. Since Turkey's invasion of Cyprus in July 1974, the people of Cyprus, Greek and Turkish, have been living in separated worlds. The northern part of the island is effectively integrated with the Turkish economy today (currently, Turkey enjoys unprecedented levels of economic growth and prosperity). The Republic of Cyprus, de facto divided but de jure united, became a member of the EU in 2004 and adopted the Euro on 1 January 2008. Now, it is this Greek-Cypriot Cyprus that has the banking problems and will become known for its severe banking problem - not least because of its deep integration with EU structures and processes.
When Turkey invaded the Republic in 1974, the Cypriot economy contracted by 17% and again, the following year, by 19%. It is now estimated that, following the levy on deposits over 100,000 Euros and the bank restructuring, contraction might become even worse. Germany's financial imposition seems to be bringing about more severe economic consequences than Turkey's invasion. Who is to blame?
As usual, the weakest party is the first to be blamed: Cyprus has become a tax haven and an offshore paradise, washing Russian, Serbian and Arab money; its financial and banking sector is almost eight times its economic output; it created a real estate bubble and now suffers from non-serviceable mortgages and bad loans; it bought Greek debt, suffering massive losses when Greece's creditors imposed a "haircut" in 2011; and, last but not least, the Greek Cypriots failed to unite the island in 2004 in a referendum in which the Turkish Cypriots voted in favour and the Greek Cypriots against unity (those arguing this forget what the Annan plan was about: a neo-colonial design guaranteeing NATO's interests against the ordinary Cypriots and the refugees).
In other words, Greek Cyprus gets what it deserves: harsh austerity measures and punishment of Russian and other tycoons sheltering their money there. Interestingly, these measures include, among others, capital and exchange controls which not only contravene the letter and spirit of European treaties, but also bolster the disintegrative tendencies within the EU, further distancing the North from the Mediterranean South. Moreover, this crisis reveals, once more, the hierarchical, hegemonic and authoritarian way in which EU business is done. Not a hint of equality, respect, liberal democracy or solidarity.
The 10 billion euros bailout deal the creditors have agreed to with the Cypriot authorities was signed on 25 March, the anniversary of the Treaty of Rome, in which all the above noble values of the Enlightenment are enshrined - even though none were respected in the deal.
The arguments put forth by Germany and other creditor states about the nature of the bailout requirements are very shallow and contradict the historical manipulation of Cyprus by Euro-Atlantic interests, whether economic or geopolitical.
Soon after the Turkish invasion, and lacking socio-economic and political integration either with Greece or Turkey, Cyprus, as a capitalist economy, had no options but to develop and export services, such as banking, finance and tourism. And it did so very well. In fact, the west did pretty much the same. The shadow banking practices of which the Greek Cypriots are accused are far more highly developed and obscure in Wall Street, the City of London, Switzerland and Frankfurt itself. Why is HSBC and its activities, especially in occupied Cyprus, so easily forgotten? Moreover, it should be said, Cyprus did not envisage financialisation and globalisation. Both have been devised by, and exported from, the USA and other metropolises, not by Cyprus, Greece or Portugal.
The west did not follow in Cyprus’ footsteps; rather, it is the other way around. It is the west that encouraged Cyprus to embrace its model of financialisation, opening up to foreign capital and services. But this will no longer be the case. The austerity imposed by Germany and the IMF is so harsh that no cash is available any more to buy any commodity, whether "real" or "fictitious". Merkel's anti-inflationist and neo-liberal policy is undermining Germany's own export-led model of economic success. Austerity in the periphery is bound to hit core economies badly - in fact, it does already. In other words, Germany is digging its own grave but it has no right to take others down with it, including Britain, a country in which austerity has already become pronounced (new taxation on families and households, abolition of benefits etc.).
If this analysis is by and large correct, then the Eurozone has no prospects of survival. Sooner or later it will disintegrate and it is almost certain that there are already contingency plans drawn up for this eventuality. But there is also the dimension of geopolitics. The troika's Cypriot policy undermines the Russian presence in and around Cyprus. It is deeply provocative, inasmuch as more than one third of deposits of over 100,000 Euros to be levied are held by Russian interests (they are also held, it should not be forgotten, by pension funds, university accounts, and ordinary people's legal and hard-earned savings, although most recent information suggests that pension funds and state and university accounts will be excluded).
The geopolitical dimension sees Germany raging at Russia in order to have the Russians excluded from the division of spoils over the Cypriot gas bonanza discovered within the jurisdiction of the Republic of Cyprus. Russia has port facilities in Tartus, Syria, but it could be interested in financing alternative facilities in Cypriot ports owing to the unstable political situation in Syria.
Cyprus is already in advanced talks with the US energy company "Noble" over the construction of a liquid gas terminal (LNG). Construction is about to start in 2016 and the terminal, capable of delivering up to 6 million tonnes of LNG per year, will be fully operational by 2019. Turkey opposes Russia's overtures, a stance reinforced by the parlous state of affairs in the Republic. It claims co-ownership of the gas reserves via the Turkish Cypriots, while pushing for the abandonment of the LNG terminal and opting instead for an underwater pipeline connecting the gas field with southern Turkey. Germany is pushing for the pipeline option that connects the field directly with Turkey, but France and, to a certain degree, the USA, opposes this.
Greece's interest stands for designating its Exclusive Economic Zone (EEZ) together with Cyprus, thus extending its sovereign rights around the Cypriot continental shelf, thus acquiring a stake in Cypriot gas.
The new rapprochement between Israel and Turkey brokered by Obama's recent visit to Israel, as well as Kurdish imprisoned leader Abdullah Ocalan's call for peace, should also be factored into any geopolitical analysis of the conjuncture. Interestingly, Turkey now pushes the Europeans hard to accept it into the EU club as an equal member. But this will loosen further the cohesion of the EU and thus the prospects for the survival of the Euro.
The inescapable conclusion is that continuing geopolitical antagonism in the Eastern Mediterranean drives European politics further and further away from any prospect of integration. If anything, diverging EU state interests straddle the rickety economic structures of the Euro, precipitating the decomposition of the Eurozone.
As things stands at the moment, this can be averted only by a radical change of policy in Berlin and the adoption of a transition programme leading to a democratic and socialist Europe. How likely this is to happen is anybody's guess.