Good morning. Having slept on it, I am recollecting my thoughts here, and providing an analysis. I have two different developments in my mind that at some point (will) converge.
The first is the financial crisis of Cyprus and its relation to the Eurozone. The second is the very recent and important geostrategic changes in the Eastern Mediterranean. Bear with me and follow through my analysis. (Those of you who have read other analyses from me, will perhaps see a change in my estimations and opinions. Yes: I have reassessed certain things).
On the financial crisis in Cyprus: Before anything, I must point out that I have come to the (speculative) conclusion that the president of Cyprus, Nikos Anastasiadis, must have known about the scenario of the haircut of deposits with less than 100K before he went to the Eurogroup meeting. Even if he did not explicitly know, he should have known beforehand, he should have suspected that things could go there. The reason is simple: the scenario regarding the intention of Merkel to ask for a general deposit haircut, even if it was not (directly or indirectly) diplomatically communicated to him (through his friends in Europe: he boasted about his connections so many times anyway), Merkel made sure that her intentions were leaked to the world. The German, government-friendly, and very big newspaper, Die Welt, published on March 1st a report that said that the most possible scenario for Cyprus included a deposit haircut (Link here: http://www.welt.de/wirtschaft/article114026125/Heftiger-Streit-ueber-frisches-Geld-fuer-Zypern.html). We, the Cypriots, saw it, and we translated it and the next day, March 2nd, it was in our newspapers. But we evaluated it as propaganda and as not so possible. Regardless of the evaluation at the time though, even if Nikos Anastasiadis did not have direct information through diplomatic channels, Merkel made sure to leak her intentions. Through Die Welt. So: Anastasiadis should have known that it was on the table.
Now, the leak did not concern a haircut of deposits under 100K, but was a vague suggestion. It simply said: haircut of deposits for the amount of around 1,5 Billion Euros. Now Nikos ought to have been prepared for it and had a plan B when he faced the Eurogroup in case there was insistence on a deposits haircut. And he should have done his maths to know that if he did not want accounts under 100K to be touched, this meant X% of haircut for deposits above 100K. Or: A combination of X and Y for accounts above and below 100K. My point is: Anastasiadis should have not been “taken by surprise” as he said and hastily come up with a combination of percentages that included the under 100K deposits. Either he was prepared for what he came back with or he was stupid and unprepared and did not do his homework. Merkel communicated it timely that she was going to push it to that direction, and it was up to him to make the maths. Now: whose fault is it for the fiasco of proposing a haircut to deposits under 100K?
Everyone’s. Granted: even the scenario leaked concerned a haircut of only 1.5 Billion Euros, so Anastasiades should/could/ought to have been prepared for some accounts haircut to be put on the table, but not of that extent actually proposed (i.e. of 5.8 Billion Euros). And the fact that Merkel pushed to that direction and the fact that she “communicated” her intentions and direction timely does not let her off the hook. If you see anyway the justification she gave for why a haircut to deposits made sense (after all of Europe and especially SPD leadership in Germany went against her for pushing towards the deposits haircut), you will see that the logic she appealed to is good enough to explain and justify extensive haircut of all sorts and numbers, also applying to deposits under 100K as well: Spiegel writes: “Merkel habe darauf verwiesen, dass in Zypern Sparguthaben höher verzinst wurden als in Deutschland. Daran gemessen sei der mit der Euro-Gruppe am vorigen Wochenende ausgehandelte Plan, Guthaben einmalig zu besteuern, akzeptabel gewesen.” → Merkel basically says that in Cyprus the interest rate is so big, so much bigger than Germany, that a one-off “taxation” on them to get the bail-out money is “acceptable”. The interest difference by virtue of which Merkel justifies what she wanted applies for all accounts.
Back to Anastasiades. He ought to have known. But anyway, at the end of the day, he concurred. And ALL OF THE EUROGROUP CONCURRED! Were they not in the same room? They are also co-responsible for the fiasco. Especially Oli Rehn who was the first one to directly put it on the table that night, and the Dutch minister presiding over the Eurogroup, as well as every other fucking country in that Eurogroup who let Anastasiadis leave and come back to Cyprus with a proposal for a haircut on deposits under 100K. The assumption that Cyprus was not a systemic danger and thus a haircut to deposits under 100K could be a “one off” that would not cause problems to the rest of the Eurozone, was the worst assumption and justification made in the history of the Eurozone crisis. Firstly, because Cyprus IS systemic danger. But also, more importantly: WHY DID WE, THE WORKING CLASS CYPRIOTS, NEEDED TO BE A “SYSTEMIC DANGER” IN ORDER FOR EUROPE TO RAISE THEIR FUCKING HAND AND SAY: LOOK, SYSTEMIC OR NOT, WE MUST NOT LET THEM PAY FOR THE MISTAKES OF THEIR POLITICAL RICH ELITE AND THE RICH RUSSIANS. Systemic or not, we WERE, and still ARE, Europeans and in need of solidarity.
Now on a more geopolitical level, concerning why Russia did not help Cyprus, when Cyprus minister of Finance went to Moscow.
Russia was hesitant to help because, in my opinion, they knew there were difficult developments taking place in the Eastern Mediterranean with Israel and Turkey and the US, with respect to Syria (and Iran in the background). The power balance in the Eastern Mediterranean has already changed. Russia is pushed out, and it is very difficult and risky to try to subvert that. In this context, they could not push their way back into Cyprus, and they did not show the appetite to try. To negotiate the establishment of a naval basis in Cyprus is I think out of the question. In addition, the interest to mingle with the gas is not there, since they are not sure if it’s worth it, since the Gas findings in the area are not such a great finding, in terms of international measures, and it is still a bit too speculative and feasibility uncertain. The gas findings there are perhaps enough to shift the regional power structures and energy balances, but not enough to affect or change the energy map of the EU itself (i.e. the EU tapping into the Gas reserves of the Mediterranean will not amount into the saught “diversification” and independence from Russia). But the Gas reserves are probably an important finding for the Mediterranean bloc. In addition: Putin has another reason and gain out of his apathy towards the Russian oligarchs that will lose their money in Cyprus, but in order for this to be made evident we must abandon manichaistic thinking: Putin is neither with nor against the oligarchs. Some of them support him, some of them are in a different clan. Putin has always maintained that he was annoyed by the system of offshore investing of Russian oligarchs because that meant Russia losing on taxes, and decentralisation that he dislikes. He always said he wanted Russian money to be in Russia. Now, he may as well have achieved that, the return of Russian money to Russia, without any of the Oligarchs blaming him either, since this does not come out of any kind of restrictions on capital flow, applied by him, but out of a failure of the Eurozone to offer protection for those funds. Because of these reasons, the gas was not a big attraction for Russia, so as to have them throw Cyprus cash and help us in the bail-out. It was not worth the risk.
Now on the geopolitical changes in the area that will inevitably very soon affect Cyprus and bring new developments.
During the last three days, we’ve witnessed Turkey (and I dare say Obama) being very clever, having worked silently, managed to miraculously (!) resolve two of their most important bilateral problems: 1) Tensions with the Kurds, and 2) Tensions with Israel. Regarding the first: Read what happened with Ocalan and the statement he issued. No more warfare, only politics. So: normalization with Kurds.
AND, normalization with Israel: Israel issued an apology over Mavi-Marmara. Why did this happen? It’s easy to answer that: Turkey and Israel they have a common important problem: Syria. And in the depth of it: Iran. So they have united against that. (In this context, I think Russia will soon be forced to give up its territory there. Russia lost that front.)
In the context of a new alliance between Turkey and Israel, they will also work together for the gas. This means that the way is paved for Turkey to demand half of the gas findings belonging to Cyprus (in the general context of the argument of settling the Cyprus problem the way they have always wanted). But this also opens the way for Turkey to concentrate more emphatically (and if they need to: aggressively) on the Aegean dispute with Greece. (Already Turkey became more demanding; I will not get into it now as it is more complex, but certain things happened the last month that show this. The signs are there).
What does this mean for Cyprus? It means that since financial growth of Cyprus is now heavily attached to the prospects of gas extraction, Cyprus has no other option than to work together with Turkey. Expect the Americans soon to come and propose a new alliance; they will be the mediators, both between Turkey and Cyprus, and Turkey and Greece. (There are suspected gas reserves also in the Greece area). The plan is to resolve the Cyprus issue before any extraction of gas can start, and Cyprus will be forced to both solve the Cyprus problem, and share the gas. I used to see a lot of tension in the Eastern Mediterranean area but I think these new developments, i.e. the normalization of relations between Israel and Turkey, the fall of Assad and the marginalization of Russia, and the bankruptcy of Greece and Cyprus, resolves the tensions significantly, and solutions will be brought very swiftly, especially since both Cyprus and Greece have been weakened. Either we like it or not.