The Battle for Cyprus
Germany’s systematic subjugation of the eurozone entered a critical new phase last Saturday with the creation of a bailout package for Cyprus. Although Germany’s radical demand for a levy on Cypriot bank accounts was rejected by Cyprus’s parliament last night, it was too late to prevent catastrophic damage.
To Cyprus, and even the EU.
Cyprus’s banks have yet to open. When they do, the chances of a major bank run are high. Meanwhile, when it comes to Cyprus’s desperately needed €10 billion bailout, negotiations are back to square one. In fact, future negotiations with the EU will be tougher now that Cyprus is showing itself to be intractable and uncompromising. Yet, even as the geopolitical stand-off continues, Cyprus is quickly moving toward financial collapse. The country needs €10 billion, and it needs it very, very soon.
This explains Germany’s uncompromising response to Cyprus’s rejection of the levy last night. Following the announcement, Berlin basically told Cyprus that it can kick and scream all it wants, but that will not change the fact that its fate lies in the hands of Germany and the EU. German Finance Minister Wolfgang Schäuble told Cyprus that the EU will not compromise with the bailout conditions, including the levy. He also reminded Cypriots, very publicly (on German television), that the destiny of their two largest banks sits in the EU’s hands. “The Cypriot state cannot fund itself on the markets. Its two largest banks are insolvent and are being kept afloat with emergency funding from the ecb, but only on the condition that there will be a long-term rescue program. If this condition is no longer met, Cyprus will no longer be solvent, and this is something Cypriot decision-makers must know,” he threatened.
In other words, Cyprus must submit to German demands or go bankrupt.
Cyprus is now scrambling to find a solution.
Russia has an enormous amount at stake in Cyprus. Strategically and geopolitically, the island is critical to its projection of power in the Middle East, most notably Syria. Most significantly, Cyprus is a banking and finance hub for Russian businessmen. Russian businessmen have 20-30 billion euros deposited in Cyprus’s banks, and do billions more in commerce each year.
Germany’s levy on Cypriot bank accounts did not go unnoticed by Putin and the oligarchs. When news of the levy broke over the weekend, President Vladimir Putin called it “unfair, unprofessional and dangerous.”
Earlier this week, I received an e-mail from a friend who lives in Cyprus. He reminded me of the “clandestine interests (even geopolitical), and possibly property, investments and monies” that Russia has in Cyprus. He felt this was an attack on Russia by Germany. He also reported an uptick in the arrival of private Russian jets into Cyprus since Saturday’s announcement.
Although the levy stands to hurt many Cypriots, the lion’s share of the money (€1-3 billion) would come from Russian businessmen. Meanwhile, Russia is already contributing to the bailout by agreeing to extend a 2011 €2.3 billion loan to Cyprus.
So, by telling the Cypriot government to take money from the oligarchs, Germany is effectively forcing an extra billion or two out of the Russians.
On Monday, as it became clear that the levy would be rejected and the EU bailout would fall into jeopardy, Cypriot Finance Minister Michailis Sarris was dispatched to Russia tasked with the job of securing financing. Last night, following parliament’s rejection of the levy one of the first calls made by President Nicos Anastasiades was to Vladimir Putin. Many view Russia as Cyprus’s last option. Right now we have no details about what a Russian bailout might entail. (One rumor swirling says that Gazprombank, the finance company associated with Russian energy giant Gazprom, is preparing to step in to save Cypriot banks in return for rights to Cyprus’s oil and gas fields.)
It is important to note that formulating a Russian bailout of Cyprus—an event that would significantly increase Moscow’s power over Cyprus—is not a minor or easy task. This reality is being widely overlooked by too many pundits. Russia and Germany are powerful countries, and lest we forget, historical competitors. Both possess enormous leverage. And both place a high value on Cyprus as a strategic asset. There is more at stake here than mere finances. Germany is not going to simply give in and let Russia take control of Cyprus.
It’s hard to know exactly how this will unfold. However, Bible prophecy and the history of the German-Russian relationship provide the parameters for analyzing the battle for Cyprus.
First, no one respects Russia and understands it strengths (and weaknesses) more than Germany. Otto Von Bismarck, Kaiser Wilhelm, Adolf Hitler and Konrad Adenauer each recognized Germany’s strategic vulnerability vis-à-vis Russia. These days Berlin must consider more than just its strategic vulnerability. Germany is heavily dependent on Russia for oil and natural gas. (There were rumors this week that Russia would shut down pipelines into Europe following the Cyprus levy.) Germany does not want to upset the Russians, at least not beyond a calculated point, and will likely be compelled to negotiate some sort of deal with the Kremlin.
Second, Russia respects and fears Germany equally as much, if not more. We are all aware of the history—though we too easily marginalize it—of Nazi Germany taking Eastern Europe and invading Russia. But Moscow also understands that Berlin leads the EU, a gigantic market of 500 million people, most of whom buy their energy from Russia. Germany has technology and capital that Russia needs to develop its oil and gas infrastructure. Germany also holds the keys to more than a few pieces of territory, mostly in the Balkans and Eastern Europe, dear to Russia’s heart. Russia knows it cannot make Germany and Europe an enemy.
The most important negotiations in regard to Cyprus will now take place between Germany and Russia, not Cyprus and Russia.
Right now, neither Germany nor Russia is in a position to seriously offend the other. Therefore, it is in the interest of each to strike some sort of deal over Cyprus.
But, as the negotiations continue, here’s one thing that will not happen: Germany will not relinquish Cyprus. As Trumpet editor in chief Gerald Flurry has explained, Cyprus is a critical strategic asset to Germany. Cyprus gives Germany a foothold in the Mediterranean, an outpost from which it can monitor Iran and radical Islam, and project power into the Middle East and North Africa. Last Saturday’s attempt to impose a levy on Cypriot banks was an attempt to secure greater control of the nation. Germany may eventually be forced to compromise on the levy, but it will not compromise on Cyprus being in the EU camp.
Perhaps Russia will persuade Berlin to compromise on the levy and cut Cyprus some slack. Perhaps Germany will come to some sort of arrangement that sees Russia financing even more of Cyprus’s debt. Germany may be forced to yield to Russia’s interests somewhere in Eastern Europe. It’s unlikely that Cyprus will be put in a position that will see it leaving the EU. If Cyprus does collapse and leave the euro and the EU, Berlin will undoubtedly put measures in place that will ensure it does not leave the orbit of Germany and Europe.
Whatever deal is struck in the battle for Cyprus, you can be sure Germany is not about to relinquish its small but imperative strategic asset.