EKIP– Expert Club for Economics and Politics A Different Opinion
When talking about EU-Cyprus relations, we should always keep one thing in mind - the Union's foreign policy interests may also be in the background. The plan to rescue the Cypriot banks is no exception.
The imposed one-time tax of 9.9% on deposits over 100,000 euros and 6.75% for those under the specified amount hits not only ordinary Cypriots, but mainly affects the financial situation of Russian investors. Deposits of Russian origin are estimated at more than $ 19 billion. Many of them are owned by companies registered offshore. The “offshore” status has attracted many Russian companies in recent years that are trying to avoid tax costs or launder dirty money. It is no coincidence that Cyprus is the second largest investor in the Russian Federation with nearly $ 50 billion or 2.5% of Russian GDP. It is simply that money follows its owner. Russia recently removed Cyprus from the list of offshore zones in order to force big businessmen to invest their money in Russia, but the capital is still staying on the Mediterranean island.
The EU insists that the tax decision is fair because it divides the burden of covering bank debts between the creditor countries (Germany and its northern friends) and the citizens of Cyprus. The EU is thus allocating 10 billion euros, and the taxes are expected to bring in another 6 billion to fill the bank holes. Russian Prime Minister Dmitry Medvedev called the European actions “confiscation of foreign money,” and Putin described them as “dangerous.” The EU is playing dangerously frivolously with the Russian bear. Trying to kill two birds with one stone, the EU is entering into a dispute with Russia at a time when it needs its support. Russian banks have lent $40 billion to companies based in Cyprus. A sharp withdrawal of this capital from the country could cause the collapse of the entire economy. A possible outflow of Russian tourists could cost the Cypriot economy between 2 and 3% of GDP. Last but not least, Russia has the opportunity to help Cyprus financially, not only to protect the interests of its investors, but also to gain even greater influence on the island. Last week, the country offered a rescue loan of 5 billion euros. Cyprus refused under European pressure.
Why does the EU want Russia out of Cyprus? One of the reasons that has been discussed recently is the Union's energy policy. Cyprus recently discovered deposits of nearly 200 billion cubic meters of gas in the eastern Mediterranean. Their development will make the country not only energy independent, but also potentially a gas exporter to Europe at a time when the continent is desperately seeking diversification. The deposit is disputed by Turkey, which has claims to Northern Cyprus. Russia's Gazprom is trying to quietly join the game by taking a share of the new gas. It is no coincidence that the gas giant, through its financial arm, Gazprombank, promised to grant a loan to the Cypriot government in exchange for permission to explore the gas deposits. The EU is horrified by the prospect of Russia owning some of the largest gas deposits within the Union.
Cyprus is unlikely to hand over a share of its resources to Russia, but at a time when the country is in the EU’s disfavor, all options are on the table. In its attempt to make a shrewd geopolitical move, Brussels is risking not only the trust of the periphery countries in the democracy and transparency of the eurozone’s measures, but also the possibility of rapprochement with Russia. The latest actions will cause an even greater chasm between the rich North and the indebted South. This could push them onto a different geopolitical trajectory, undermining the foundations of a political union. In addition, the EU is also threatening the financial security of other European countries with Russian assets, such as the Baltic states.
The European move could also make Russia more assertive in Ukraine, where the two giants’ orbits of influence collide. The sale of Ukraine’s gas transmission network to a Russian-Ukrainian consortium instead of European companies last week could be the final nail in the coffin of Ukraine’s European dream. The loss of Ukraine would not only put Europe’s energy security in question, but would also clearly demonstrate the EU’s lack of direction in foreign policy.
In my opinion, the Eurocrats have finally made a mistake in the struggle for survival, which is clearly dictated by the gap in the interests of the "rescuer" and "saved" countries in the Eurozone. Just as there are some 130 million people in Southern Europe who point the finger at the North, where they believe the problems come from, there are just as many from the North who have no intention of paying for all the problems of the South. The divorce is already looming, the question is what else will add fuel to the fire for it to happen.
In my opinion, in this case Russia plays a minimal role. Neither will Russian billionaires, millionaires, etc. have their income cut off, nor will they have places to park their money disappear. If the deposits are 19 billion, then the tax on them will certainly be under 2 billion, which is a decent amount, but not at all large. It is not surprising that they will raise the price of gas for the Germans a little in the next contract to compensate.
It is much more frightening for the Cypriots themselves, for the Euro as a whole and for the mutual trust and confidence in the system of all Eurozone countries. I do not think that things are going well this year, if some growth does not start in at least some part of the monetary union, the motivation to maintain the status quo will further decrease for all countries. What exactly could cause a possible collapse of the Eurozone is, in my opinion, very difficult to predict, it is not surprising that it could also turn out to be one of the "black swan" events, but in my opinion the conditions for at least a partial collapse with the secession of the South already exist.