One of the smallest nations in the Eurozone is short of cash and desperate to avoid the crippling austerity measures that have impacted so heavily on Greece, Ireland and Portugal. In its desperate need for cash Cyprus is turning to the open arms of Russia, a country that the world remains wary of.
The Eurozone crisis has hit Cyprus hard, its banks are struggling to survive, unemployment continues to rise and its communist president appears eager to jump into bed with the country he so admires and the old enemy of the West, Russia.
Despite the Cold War ending in the early 90’s and democracy arriving in Russia, the country has seen itself being taken over by corrupt oil tycoons and a government that many fear is setting itself up to be a totalitarian regime. The game of President Vladimir Putin swapping job roles with his best mate Demitry Medived every four years to get around those pesky elections and the threat of losing power has caused many in the West to be concerned. Many Russians can see the deception and as protests erupted in Moscow earlier this year they were quickly silenced by the security forces.
The Cypriot president Demetris Christofias is the only communist leader ruling in Europe and has close ties with the old guard of the Soviet Union. He has turned to his friends in Russia for financial aid before, last year the Russians granted the island a three-year loan of up to €2.5 billion at a below market rate of 4.5%. Estimates suggest that the country, generates a little over €17 billion in gross domestic product annually, and may need 10 billion Euros for its banking and financial sector alone.
A loan from the Russians would be more beneficial to the island as it would come with fewer conditions and allow Cyprus to avoid the national embarrassment of austerity.
The Cypriot president said; “We need money to develop our economy and we need money to recapitalise our banks,” he said as Cyprus begins its six-month presidency of the EU. “The Russians, as good friends of Cyprus, want to take care of us,” he said, adding that he was prepared to take money from both Moscow and his partners in the Eurozone if it would help put the island’s small and vulnerable economy back on track.
“We could combine both,” he said when asked if he would rather take aid from Russia or the European Union.
The big question being asked is what exactly is behind the kindness of the Russians? Why should they be concerned over the fate of a tiny nation in the Eurozone? Many observers believe that the answer to these questions rests in the large reserves of natural gas found in the waters close to Cyprus. Another worrying issue is that the Russians could ask for the use of Cypriot land for the construction of a naval base, creating a Russian naval presence in the Mediterranean, a move that would deeply worry the West.
There are fears in the EU that by getting to close to Russia, Cyprus could become a vassal of the Kremlin. Russia’s spy agencies are suspected of operating out of Cyprus and its location close to the Middle East makes it an important strategic location.
In January a Russian cargo ship with 60 tons of ammunition stopped on the island on its way to Syria. Cyprus, as an EU member, must obey the Brussels strict embargo on military supplies to Syria. But the ship was allowed to sail after giving assurances that it would alter its route.
Cyprus may find itself in a difficult position as it finds itself taking over the EU presidency, a largely ceremonial role but one that requires it to plan the bloc’s agenda and chairs many of its meetings. The tiny nation’s loyalties may be put to the test over the coming months as the Euro crisis rumbles on, will it end up in the same bed as Russia or stay true to the EU.
The Pound to Euro exchange rate is currently trading at 1.244
The Pound to US Dollar exchange rate is currently trading at 1.555
The Euro to Australian Dollar exchange rate is currently trading at 1.216
The Euro to US Dollar exchange rate is currently trading at 1.250
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