Cyprus – The Mouse That Roared

In the last week tiny Cyprus has become – The Mouse That Roared. It has dared to say no to the combined might of the EU, ECB and IMF, and refused, so far, to agree to expropriate money from the savings of its people. It has dared to challenge their right to impose the same kind of disastrous policies of austerity that have crippled the economies of Greece, Ireland, Portugal, Spain and Italy, and which are threatening to keep Europe in recession, even as the global economic cycle turns up, and brings growth in China, the US and elsewhere back to the levels prior to the North Atlantic financial crisis of 2008.

In doing so, as Paul Mason reported recently on Newsnight, it has set social networks across southern Europe alight with chatter about following their example. That is dangerous for the EU bureaucrats. But, much more dangerous has been their own stupid decision to impose these policies on Cyprus, particularly the decision to confiscate people's savings, because that now means that no one in Europe, particularly in the periphery can consider their money safe in the banks.

As I write, the EU is still trying to play the strongman in imposing its conditions on Cyprus. The ECB is threatening to withdraw financing unless Cyprus capitulates by Monday. But, again as Paul Mason pointed out, the EU and ECB have little in the way of bargaining chips. It is them not the people and politicians in Cyprus who are sweating. At the end of the day, if Cyprus decides, it can simply withdraw from the Euro, print Cyprus Pounds, and use them to recapitalise its banks and pay off its debts. The repercussions of that across Europe would be many times the size of the event. It is a huge bomb in the possession of Cyprus, sitting in the heart of the European and global financial system.

That is pretty much the same kind of position that Grand Fenwick found itself in. It started out seeking a financial boost in war reparations, similar to the Marshall Plan, by declaring war on the US. But, its development of the world's most powerful bomb, by Professor Kokintz, played by the wonderful David Kossoff, in the film, changes the whole game plan. But, Cyprus also could utilise a similar scenario as depicted in the sequel – The Mouse On The Moon.

In it Grand Fenwick plays off the US, and USSR to obtain resources for a space programme, that in reality turns out to be being used to provide it with a heating and hot water system. As we speak, the Cypriot Finance Minister is in Russia, trying to secure a deal for finance, as an alternative to finance from the EU and IMF. Russia is unlikely to simply hand over the money, and has its eye on Cyprus' newly found gas fields.

But, following Grand Fenwick's example, it has another bargaining chip. Russia has always wanted a warm water port for its navy, similar to those enjoyed by NATO. Cyprus provides it with a perfect opportunity. Cyprus is a member of NATO, but it could quickly withdraw its membership, thereby saving itself a certain amount of money. It could then rent out its facilities to Russia, for a sizeable up front payment. A large Russian naval base on Cyprus would be great for Russia. It provides it with the warm water port it has always wanted; it provides a strategic base in the Mediterranean with quick access to the Suez Canal, as well as a strategic position off the Middle east and North Africa.

At the moment, Britain has a large naval base on Cyprus, which brings it in a certain amount of income, but Britain is a rapidly declining economic and military power, whilst Russia is a rapidly rising economic and military power. In addition, Russia is making closer ties with the other rapidly rising economic and and military power, China. From a longer term perspective, it would make much more sense for Cyprus to tie its interests to Russia than to the EU, especially considering the way the EU has failed to provide it with any kind of solidarity when it was required.

In fact, given the support given to Greece, that is ironic. A large part of Cyprus' problems arises not from the actions of Cyprus, or of its banks, but of the actions of Greece, and of the Troika. Cyprus' banks had invested a large amount of money in Greek Bonds. When Greece went bankrupt, part of the rescue package organised by the Troika, involved bondholders taking an 80% haircut on those bonds. That meant Cypriot banks lost 80% of their investment. Had, Greece actually defaulted, then bondholders would have been able to claim compensation under their bond insurance. But, part of the Troika deal meant that although Greece had in reality defaulted, it was not treated as such. Why, was it done that way? Because it would have set off a massive series of claims that would have bankrupted much of the global banking system.

Cyprus has suffered as a result of that deception, and having done so, those that perpetrated it, have then decided to play hard ball in refusing Cyprus a measly €7 billion to resolve the situation. They may live to regret that decision. They certainly deserve to.