Cyprus: A Vassal State of Germany

From the May-June 2013 Trumpet Print Edition

The banking sector was the engine of Cyprus’s economic growth. Taking money directly from depositors has destroyed that engine. Cyprus has no easy way to get its economy growing again, leaving it dependent on Germany. This bailout has solved none of the island nation’s problems, and created some new ones.

As the hated bankers leave Cyprus, some may say “good riddance.” But where else is Cyprus going to get the money to pay back its loans from Europe? Germany killed Cyprus’s golden goose. Without the money from the banking system, Cyprus cannot raise the cash to keep its economy afloat. Like Greece, it will struggle to meet the bailout conditions. Each time it needs more money, it will need approval from Germany and have to meet Germany’s conditions. “From now on … it cannot make decisions for its own good,” wrote Charles Moore, former editor of the Spectator and Daily Telegraph. “It is a tiny, far-flung, vulnerable part of the new German Europe.”

German voters, wrote Moore, “dislike shelling out for what they see as feckless Mediterraneans: they detest the idea of doing so for what they see as crooked Russians. The conflict between Teuton and Slav has never ceased. Mrs Merkel’s policy for Cyprus has to be constructed round what her Teutons want.”

Moore concluded, “After victory in 1945, Churchill broadcast that Germany ‘lies prostrate before us.’ Today, most of southern Europe lies prostrate before Germany” (emphasis added).

Moore isn’t the only one to notice Germany’s victory. “History shows it is, always, only a matter of time before Germany ends up dominating Europe,” wrote the Daily Mail’s Simon Heffer. “After years of refusing to assert itself, Germany’s time has come again. The Fourth Reich is here without a shot being fired: and the rest of Europe, and the world, had better get used to it.”

The effects of the Cyprus bailout will stretch far beyond the Mediterranean island. As Heffer pointed out, the fact that the deal forced bank depositors to cough up funds “sends an ominous signal to other EU nations.”

Stratfor’s founder George Friedman described what a turning point this is: “What is certain is that an EU country, facing a crisis in its financial system, is now weighing whether to pay for that crisis by seizing depositors’ money. And with that, the Europeans have broken a barrier that has been in place since the 1930s. They didn’t do that casually and they didn’t do that because they wanted to. But they did it.”

This could be the start of the new precedent for solving Europe’s financial crisis. Jeroen Dijsselbloem, head of the group of Eurozone finance ministers, indicated that Cyprus could be a template for other countries. This could have far-reaching and unpredictable consequences.

But the most important change comes from within Germany. The think tank Open Europe wrote on March 26, “In our daily monitoring of the German press, we’ve sensed a hardening of tone and rhetoric throughout the crisis, not least in response to the overtly anti-German tone of many of the anti-austerity protests in the south.”

In Die Welt, Thomas Straubhaar, director of the Hamburg Institute of International Economics, called the bailout deal a “turning point.” “Up until now, the bankrupt countries have been able to use fear of a domino effect to extort Europe,” he wrote. “That is now over because the strong eurozone countries have the better hand—and they should not be afraid to play it” (translation by Open Europe).

The think tank concludes: “The implications of a Germany more prepared to assert its viewpoint [have] huge implications for the future of the eurozone and the EU as a whole.”

The euro crisis has many dramatic chapters still to come. Several other nations could need a bailout, and those that have already received one may need another. But what happened this March in Cyprus changes the game. Germany rules Cyprus, and its new uncompromising attitude is certain to contribute to the further spread of German power.”