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The tremors hitting Cyprus could shake the world

Managing the conflicting interests of foreign powers on the island requires supreme statesmanship; there is much more at stake than the solvency of banks

Gulf News

From Homer to H.G. Wells, islands have been depicted in European literature as sun-kissed havens of sorcery, places where the natural order is inverted to terrible effect. For Eurozone leaders, Cyprus is the real deal.

In a sense they have only themselves to blame. They should never have put their names last Saturday to the legalised robbery of insured small savers that masqueraded as a contribution to the financial rescue of Cyprus. Then again, Nicos Anastasiades, Cyprus’s ostensibly pro-European president, should never have insisted on lightening the burden on millionaire foreign depositors — mostly Russians.

The proposed raid on bank savings sank to the bottom of the Mediterranean on Tuesday when not a single member of the island’s legislature voted for it, even in hastily diluted form. But now the damage is done. All the old fears about the integrity of Europe’s 14-year-old monetary union are resurfacing, with some Eurozone policy makers airing the idea that Cyprus might drop out.

These fears combine with new anxieties about the geopolitical impact of the instability in Cyprus. The island is not only physically divided between Greek and Turkish Cypriots, but is located in a combustible region where the military, diplomatic, energy and financial interests of at least half a dozen powers collide.

As such, Cyprus reminds us that the trouble caused by islands is often inversely proportional to their size: Think of Taiwan since 1949, Cuba in 1962 and the Falklands in 1982. Europe’s financial crisis touched spectacular heights in Iceland and Ireland. Cyprus stands out, however, for the trajectory of its policies since it won independence from Britain in 1960.

Red telephone booths, pillar boxes, fish and chips, pubs and the practice of driving on the left illustrate how British culture pervaded Cypriot life after independence. In diplomatic terms, the influences were less marked. Cyprus joined the Commonwealth in 1961 but, wanting no part of the Cold War, took care also to become a founder-member of the Non-Aligned Movement, along with heavyweights such as Egypt, India and Indonesia. Lying closer to Israel, Lebanon and Syria than mainland Europe, and troubled by civil conflict between its Greek and Turkish communities, Cyprus scarcely imagined in this era that its destiny might lie in the emerging process of European integration.

Everything changed after the Turkish invasion of 1974, launched after a Greek-backed coup that aimed at uniting Cyprus with Greece. With the island partitioned, its northern areas occupied by Turkish troops, Greek Cypriots sought diplomatic support from every corner of the earth. In 2006 this reached such absurd lengths that Cyprus, courting France, became an associate member of the Organisation Internationale de la Francophonie, the world club of French-speaking nations.

In the meantime, the Berlin Wall had fallen and the EU was absorbing most of central and eastern Europe. Cyprus joined the EU in 2004, partly to avoid regional isolation, partly for the economic benefits, and partly to keep Turkey at bay.

Along the way Cyprus acquired dubious friends such as Slobodan Milosevic, the Serbian dictator whose warmongering regime, hit by western sanctions, used the island for financial operations. Post-communist Russians came to Cyprus, too — attracted not by English fish and chips, but by the reliability of English law for business transactions.

In the present crisis, Russia’s interests are multi-layered. The Kremlin does not necessarily share the preference of Russian businesses and the nouveaux riches to maintain Cyprus as a lightly taxed investment centre and a hideaway for cash piles. But Russian energy interests might like a slice of the gas bonanza, if such it proves to be, and were the Kremlin to lose its Tartus naval base in Syria it might like a replacement in Cyprus.

Arguably, Russia’s long-term interest lies in keeping Cyprus in the Eurozone and EU. Grateful for Russian support in the Cyprus dispute, the Greek Cypriots are sometimes useful advocates of Moscow’s causes. In 2008 they argued, like Russia, against EU recognition of Kosovo’s independence. They were also firmly against EU punishment of Moscow for its dismemberment of Georgia.

But the latest crisis draws in Britain, Greece, Israel, the US and Turkey, not to mention Germany as the Eurozone’s indispensable decision maker. Nearby a civil war rages in Syria and political turbulence disturbs Egypt and Iraq. Cyprus is not even immune to international tensions over Iran. The island’s economic emergency intensified in July 2011 when a cache of Iranian weapons, seized by the US navy and stored at a Cypriot base, exploded and knocked out half the island’s electricity supply.

In coming hours and days, much more will be at stake than the solvency of Cyprus’s banks or its Eurozone membership. For example, any financial rescue tied to future revenues from Cyprus’s newly discovered gas reserves, tentatively valued at up to $80 billion (Dh293.6 billion), will give rise to hotly contested claims to the assets.

Among the claimants would be the Turkish Cypriots, backed by Turkey, whose military presence in northern Cyprus serves as a permanent reminder of the island’s political fragility. Such a dispute would suck in Greece, traditional patron of the Greek Cypriots, and Israel, their partner in energy development. The US, whose Sixth Fleet makes it the pre-eminent Mediterranean naval power, would be drawn in, and so would Britain with its two sovereign military bases in Cyprus.

Preventing these entanglements from getting out of control will require supreme statesmanship from everyone involved. Perhaps the thought that next year marks the 100th anniversary of the shooting of the Archduke Franz Ferdinand will concentrate minds.

— Financial Times