Cyprus goes cap in hand to Moscow

Vladimir Putin is chipping away at the foundations of EU unity once again. As Russian-backed separatists sneer at the Minsk II cease fire, extolling their newly conquered strategic pile of rubble, the town of Debaltseve, the Cypriot president Nicos Anastasiades flew to Moscow in a tizzy for a two-day official visit. On Feb. 25, the two countries signed a glut of bilateral agreements on topics ranging from the harmless (science) to a vexing military deal to allow the use of the seaports by Russian military forces in “humanitarian and anti-terrorist operations”. Under the agreement, Russian warships will dock next to the Limassol British base, one of NATO’s most important airbases and electronic surveillance sites for the ongoing operations in Iraq.

In the subsequent joint press conference Anastasiades humbly pledged to strengthen bilateral relations, in spite of a tense international situation, claiming that “the least that I could do at this difficult moment is to come to Russia” and characterized the visit as a “landmark” in bilateral relations. Trying to smooth the edges on the ongoing Ukraine debacle, the Cyprian President described the situation as a “civil conflict” and “welcomed” the overtures made by Putin in the Minsk peace process. Alongside Greece, Cyprus expressed its disapproval when, on Jan. 27, the European Council issued a statement on new Russian sanctions.

For his part, Putin retorted with a jovial “Russia will continue to help Cyprus recover from the consequences of the debt crisis”, referring to the country’s 2011 €2.5 billion bailout. As the Cypriot banking sector was going under, the loan was restructured in 2013 and saw its yearly interest rate slashed from 4.5 to 2.5 percent. Putin slyly remarked that even if Cyprus is small, it’s voice carries weight since it is an “equal member” of the EU, a veiled reference to the unanimity required in the European Council in order to pass further sanctions on Moscow.

During his two-day visit, Anastasiades seemed not to preside over a EU-member country, exposing the glaring dependency Cyprus has on Russia’s goodwill, a double standard that shouldn’t be lost on Brussels. The two countries have long enjoyed close relations. At 12.5 percent, Cyprus has the lowest corporate tax rate in the European Union, which made the small island the fiscal paradise of choice for most Russian businesses.

There are some 273,000 companies registered in a country where the population is shy of a million, the volume of Cypriot investments in Russia totals $65 billion, while Cyprus has attracted $33 billion in Russian investment. But make no mistake, the constellation of these factors points not to Cypriot entrepreneurship but to Russia’s deep-seated economic ties with the Mediterranean nation. Russian nationals make up the largest part of the island’s tourism in terms of cash spent.

However, the Kremlin’s love for Cyprus soured after the country’s financial system went belly up in 2013, and Nicosia implemented a controversial program to apply a one-time 6.75 percent tax on all banking deposits above €100,000. Obviously, Russians were the hardest hit and Moscow refused to compensate those who incurred loses or to extend a new credit lifeline to the small island. Moreover, Russia’s own economic problems prompted Putin to call on Russian businessmen to “de-offshore” assets held in foreign countries (read, Cyprus). In January, Russia’s richest man, Alisher Usmanov, complied and transferred his holdings from Cyprus to Russia.

Regardless of past hiccups, the shifting geopolitical landscape brought the two countries back together. Moscow needs all the allies it can get to weaken the EU’s resolve in Ukraine, while Cyprus is at loggerheads with Turkey over both the island’s reunification with the Ankara-backed north and in tapping the vast gas reserves that straddle the maritime waters of both countries.

The view in Cyprus is that the United States and the European Union have abandoned championing Nicosia’s cause in the decades-long reconciliation process with the separatists in the North in favor of cozying up to Turkey and securing its support in the war against ISIS. Disgruntled, the establishment turned to Putin for help, knowing fully well Moscow’s love hate relationship with Ankara. Essentially, in exchange for support, Cyprus has agreed to become Moscow’s bargaining chip. Outside the establishment, many have called on Cyprus to revise its foreign policy with its partners and find a balanced approach that will “look after Cyprus’ interests and not others’”

Anastasiades’ visit to Moscow is simply one more chapter in Cyprus’ rivalry with Turkey, spurred by Ankara’s defiance to come to an agreement on the delimitation of their maritime border and the West’s refusal to plunk for the Eurozone’s second smallest member. Nevertheless, long considered a post-modern union of states where the old ways of doing politics no longer applied, Europe’s tug-of-war with Russia only lays bare the long way the Continent is from truly speaking with one voice.