Dr Daniel Woker is the former Swiss Ambassador to Australia and now a Senior Lecturer at the University of St Gallen.
Over the last week or so we have been bombarded with insightful reports and profound analyses from the banking front and editorial offices on the economic fall-out of the unprecedented European rescue of Cyprus. Problem is, Cyprus is first and foremost a political problem and only secondly an economic and fiscal one.
Cyprus and Greece have been testing the political patience of other EU members for many years. That patience had to run out and it did.
A short historical recap. It was Greece, then ruled by a military junta, that started it all by undermining and finally deposing, in 1974, the first legitimate president of independent Cyprus, the Greek Bishop Makarios. Turkey then invaded the northern part of the island, which was not a good idea but which Ankara might have had the right to do under the independence agreements of 20 years before. The island was divided and has stayed that way since, defeating the clearly stated EU intention that the 2003 accession to membership for Cyprus hinged on reunification.
Reunification was rejected by a majority of ill-informed Cypriot Greeks but passed by the Cypriot Turks in a referendum held in both parts of the island in 2004. Thus Cyprus (ie. the Greek part) and Greece had violated if not the letter than certainly the spirit of the EU accession agreement. Both have done nothing since to remedy the unsustainable situation of a divided EU country.
Having thus become, in bad faith, a member of the EU and later the eurozone, the Cypriot Government knew no better than to create a wildly overblown financial market on the island, pumped up by Russian funds which mainly used the Cypriot market as a the world's largest money laundering operation. [fold]
Wooing Russian oligarchs carried more than a whiff of Cypriot nonalignment under Makarios in the 1950 and 60s. Yet what was possible then was clearly not appropriate for an EU member in the 21st century.
This brings us to the present year, when financial collapse threatened and the euro partners imposed a package with, for the first time, debtor participation.
In a desperate attempt to save its off-shore market, the conservative Greek-Cypriot government initially proposed in Brussels to finance its part of the package by having all bank clients participate in the rescue. We probably don't want to know why the Government did this as it must have realised that such a proposal wouldn't hold water with those living in Nicosia rather than in Moscow. Of course it didn't hold water and thus came about what was widely dubbed as yet another 'European worst case scenario': proclamation in Brussels followed by protest in an EU capital, withdrawal of the plan after all international damage had been done and only then the solution which should have been chosen in the first place.
EU officials should presumably have forced such a solution on the Cypriot Government early on, but in the name of sacrosanct sovereignty, they let the Cypriot Government have its initial and errant way. And just to set the record straight on another canard: it was not a German but a 'Dutch moralist' (Jeroen Dijsselbloem, the new Dutch chairman of the Eurogroup of Finance Ministers) who sternly told Cyprus and future basket cases in the euro group that northern European taxpayers' patience had run out. Germany does not 'rule Europe' and to suggest, directly or indirectly, a moustache on Angela Merkel's face is not only unfunny but ultimately tantamount to mocking the victims of the Nazis.
Cyprus is 'a victim of its own mistakes', as Hugo Dixon has pointed out. Dixon is talking about financial and fiscal mistakes, but it was political errors which brought this preventable disaster and made a global laughing stock of some of the politicians there. They might have had it coming.
Photo by Flickr user Muao.