On July 1 Cyprus has taken over the EU presidency from Denmark that headed the Union hit by financial and economic crisis. Its presidency will hardly smooth over the situation in Europe. Cyprus is moving in the direction of joining “problematic” countries of the European Union by leaps and bounds. Fitch has recently downgraded the long-tern rating of this country again assigning it a negative outlook. Fitch, S&P и Moody’s cut the Cyprus state bonds to the “junk” status.
According to Fitch the Cyprus state debt may exceed 100% of GNP. It means that it will plunge into crisis joining Greece, the country it has close ties with. In the days of “calm” financial situation the Greek anchor allowed Cyprus to feel confident in its struggle for the territorial integrity of the island nation. Now Athens may drag the partner to the bottom. "Even assuming that Greece remains in the eurozone, Cypriot banks will have to bear significant further loan losses as the Greek economy continues to contract over the medium term as well as the deterioration in domestic asset quality," – Fitch analysts say.
Anyway the first weeks of EU leadership it’s the president’s own financial problems that will top the agenda. No matter how paradoxical it may sound the situation may give a new impetus to EU anti-crisis efforts. The matter is that the EU has no resources to add Cyprus to the rescue package. It makes Nicosia look for other sources. One of them is Russia that has already granted credit on favorable terms.
By June 30 the Cyprus government is to raise € 1.8 billion for the Bank of Cyprus Public as requested by the European Banking Authority. The Bank is hardest hit by the Greek debt crisis. According to international experts overall recapitalization of the leading Cyprus banks amounts to €6 billion.
The Cyprus government has already announced its intention to ask not only Brussels but also Moscow for help. The Cypriot negotiating team is nearing the agreement with Russia on the up to €5 billion credit. It envisages more favorable terms than the ones offered by the European Union. The decision is causing quite a stir in Brussels. Cyprus is on the agenda of closed door euro zone finance ministers – the so called Eurogroup – working meeting in Luxemburg.
The reluctance of Nicosia to borrow from the EU on tough cuts terms following the example of Greece, Portugal and Ireland is a stumbling block in the Cyprus – European Union relations. Cyprus refuses the help of International Monetary Fund because it doesn’t want political conditions to be attached. The island is divided into Greek and Turkish parts. The USA and European Union’s attempts to boost Turkey’s presence in eastern Mediterranean and support the separatism of Turkish Cypriots pose a serious threat.
The Cypriot government’s unyieldingness makes the European Union soften its stance so that Cyprus could be persuaded to switch from the Greek tough national banking system recapitalization pattern to the “softer” Spanish one.
But these concessions don’t satisfy the Cypriots. Finance Minister Vasos Siarlis of Cyprus has already confirmed the country will look for different sources to be bailed out. A bilateral Russia-Cyprus credit agreement may meet the country’s needs for 1-3 years. The minister recalled such an agreement had already been concluded when Russia granted a €2.5 billion credit by the end of 2011. According to Cypriot sources it's a €3-5 billion loan on the agenda now.
Nicosia doesn’t exclude the possibility of receiving loans from China – the country that boasts more vigorous financial recovery than the European Union as a whole and eurozone states in particular.
This way Cyprus may not just become another president of the European Union, but a new example of a country that solves the problems of the EU in case it succeeds in achieving a mutually beneficial accord with the Union and Russia.
Besides financial and economic aspects the Cyprus presidency has a very important political dimension. Cyprus is becoming an even more illustrative example of “United Europe” losing ability to manage the problems.
Actually divided, Cyprus joined the European Union in 2004. The very existence of Turkish Republic of Northern Cyprus not recognized by anyone except Ankara makes the Cypriots hostages of the large-scale geopolitical games. It’s the United Nations that is tackling the issue at present. The results are minimum. The situation has exacerbated recently because of Turkey’s desire to lay hands on the island’s offshore hydrocarbons deposits.
In the case of Cyprus the European Union faces the consequences of its own mistakes when the island nation became part of it as one state. There was no previous agreement reached between the Greek Cypriots and Turkish Cypriots. The two sides didn’t even approve the peace plan put forward by then United Nations Secretary General Kofi Annan. Not a European Union member Turkey remains a UN mandate holding peace “guarantor” along with Great Britain and Greece. No management is possible without taking its interests into consideration.
The USA is the one, besides Turkey, who tries to use the European Union’s political and economic woes to its advantage. The crisis of peacemaking efforts and financial weakness of the European Union and United Nations is seen by Washington as a proof of international institutions influence going down in general terms. It’s a long time the Americans see it as a chance to make gains. The US National Intelligence Council experts state the existing international institutions are losing the capability to efficiently tackle new inter-ethnic problems. According to them by 2025 the global governance will become a mixture of overlapping, often urgent and fragmented actions of state coalitions constantly changing their compositions, as well as of international bodies, social movements, non-government organizations, charity foundations and companies. Nobody knows what’s in store for the European Union in case the assessment right.
A lot is said about the necessity of further coordination of efforts aimed at getting Europe out of the crisis before the European Union’s summit on June 28-29. The former President of France Valery Giscard d'Estaing wrote in Le Monde that the majority of stock – market speculators oppose euro and try to use the eurozone collapse in order to make profit. Their incoherent but intensive actions cause commotion and stand in the way of efforts to cool down the heat. Valery Giscard d'Estaing calls for creating one more supranational European structure – the Euro Council introducing a new position of Secretary General of eurozone. The only thing – it’ll hardly help to solve the problems of Cyprus.