Gerald Warner: Cyprus caught in proxy war between old enemies

LAST week witnessed an unprecedented display not only of the amorality but, more alarmingly, of the cretinous stupidity of those who govern us from Brussels and Berlin.

When Angela Merkel – to cut out the middlemen – feels entitled to arrest the bank accounts of individuals and institutions in another country and help herself to 10 per cent of their deposits, then the rule of law has become a folk memory in German-occupied Europe. Is this what was meant by negative interest rates? The sheer irresponsibility of risking a bank run, not just in Cyprus but ­potentially in Greece, Spain, Portugal, Italy and everywhere else the dominoes might ­topple, betrays the stupidity of those ­shoring-up the deluded euro project.

Russian premier Dmitry Medvedev ­described the EU’s handling of Cyprus as resembling a “bull in a china shop” and “tantamount to confiscation and expropriation”. Dmitry has a dog in this fight: Russian deposits in Cypriot banks total ¤24 billion (£20.4bn) and Russian banks have made loans worth ¤31bn to firms registered in Cyprus. Russia is furious not only with the EU but also with the Cypriot government. Medvedev has threatened to denounce the Russo-Cypriot double-taxation treaty and to unload some of the 42 per cent of ­Russia’s foreign reserves held in euros, which could have an interesting effect on Brussels’ Monopoly money.

Behind the financial tantrums, however, lurk geopolitical ambitions. ­Russia has long eyed Cyprus as a possible Mediterranean pied-à-terre. With its sole ­Mediterranean naval base at Tartus, in Syria, threatened by the precarious situation of the Assad regime, a move of just 200 miles to Cyprus would be very ­convenient. This month the Russian ­defence ministry announced plans to form a permanent rapid-reaction force to police Russian interests in the Mediterranean, composed of up to ten warships. Cyprus is among four possible re-supply bases being mooted. Russian links with Cyprus go far deeper than some questionable oligarchs’ bank accounts. As long ago as 1997 there was a “mini-Cuba ­crisis” when Cyprus agreed to buy 40 Russian-made ­S-300PMU-1 missiles. Turkey threatened a Cuba-style blockade; Russia replied that it had proposed the demilitarisation of ­Cyprus (with its British base) and refused to back down. Eventually the missiles were transferred to Greece.

Even culturally there are connections. Russia and Cyprus share the Orthodox faith, there are currently 40,000 ­Russians living on the island and the mayor of Limassol speaks Russian. So, Moscow’s intervention in the Cypriot crisis is both understandable and self-interested. The official inter-government talks may have resulted in Cypriot finance minister Michalis Sarris leaving empty-handed, but there is another card lying face-down on the table. The Russian business daily Vedomosti has reported that the Russian energy company Gazprom has offered to restructure Cyprus’s debt in exchange for exclusive rights to explore offshore gas deposits. Gazprom has denied this (as it would) but a Cypriot television station has claimed that company officials submitted the offer to President Nicos Anastasiades, last Sunday. It is a perfectly viable proposal. In 2011 American exploration in the ­waters south of Cyprus found gas fields with estimated gross mean resources of seven ­trillion cubic feet. Gazprombank, the energy company’s financial arm, is the third largest Russian bank, with ample ­resources to put Cyprus back on its feet.

Even though the Cypriot parliament has voted for the EU’s ludicrous good bank/bad bank “solution”, with Draconian capital controls, as those controls imprison depositors’ money and hobble the economy, the Russian option may eventually become more appealing. Behind the ­capering pantaloons centre-stage – ­Barroso, Van Rompuy, et al – this is a proxy war between two enduring enemies: Russia and Germany. When Russian leaders look at Chancellor Merkel they do not see a dowdy housewife but a Panzer tank commander: old antipathies die hard. Yet it is Germany, via the ECB, that has demonstrated gross financial irresponsibility in raiding depositors, risking a bank run and imposing capital controls on Cyprus that effectively make it a separate currency from the euro. And all to defend the fools’ gold that is the euro.

Western politicians who struggle to under­stand Vladimir Putin should bin intelligence reports and buy some good biographies of Peter the Great, Catherine the Great and Nicholas I. Putin is a classical Russian nationalist; his rule is autocratic (to the gratification of the majority of his subjects) and he has re-forged the historical alliance between the government and the Orthodox Church by imposing socially conservative laws and repressing the homosexual-rights intifada. Like Catherine the Great and Tsar Paul he has Mediterranean ambitions. Unlike them, he faces negligible opposition from a bankrupt European Union and a geopolitical illiterate in the Oval Office who makes Jimmy Carter resemble Bismarck. We should not be surprised if, by the time the EU collapses, the Mediterranean has become a Russian lake.

Twitter: @GeraldWarner1