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Cyprus and the Eurozone Crisis



The economic crisis of the Republic of Cyprus follows the Greek tragedy of the past year. Only the scale this time is bigger, but the anger in the small island with one-tenth of the population of its neighbor no less. Pressure applied by the troika of Germany, the European Central Bank and the International Monetary Fund has led to the imposition of draconian measures on the banking system of Cyprus, affecting the lives of its residents in ways unimaginable before the crisis. They include a tax on large savings, bank shutdowns and severe limitations on withdrawals and transfers for all.

These are unprecedented steps, forced on a western country by the European economic bloc which, in effect, is led by Germany. What transpired has caused humiliation among Cypriots­–a sentiment that often proves lasting and causes more problems in the longer run than it solves in the short run. Until a few days ago, Chris Pavlou was the vice chairman of the Laiki Bank of Cyprus, and was at the heart of discussions as the crisis unfolded.

An insider’s account given by him is instructive. Pavlou spoke to Britain’s Channel 4 News about the humiliation felt by Cypriot officials: “It’s not very nice actually to see two or three people half your age, clever people, coming over there and shaking their hands at the president and saying ‘you have to do this, otherwise we will bring you down’. It’s very painful for someone who has just been elected to actually face that.”

Only a few days before, even after an amended version of the original bailout package was introduced in the Cypriot parliament, not a single MP had voted in favor. In the streets of Nicosia people had celebrated the rejection, and seemed to go home happy. There was talk of Cyprus turning to Russia to bail its economy out. The finance minister of Cyprus, Michalis Sarris, was in Moscow to seek help. But as the European Central Bank’s deadline to Nicosia to “sort it” by March 25 loomed, the Cypriot finance minister spoke of there being no hurry to leave the Russian capital. The two sides held negotiations about Russia investing in the vast gas fields around Cyprus and the Cypriot banks.

In the end, though, the Cypriot finance minister returned home disappointed, because Russia would not get involved as long as Cyprus was under the European Union’s economic regime. Turkey, which supports the unrecognized “Republic of Northern Cyprus” since Ankara invaded the island in 1974 during an intense proxy war with Greece, had indicated that it might challenge Nicosia’s use of gas reserves in the bailout.

It is the politics, rather than the economics, of the eurozone’s latest crisis which is more intriguing. Faced with a general election, Germany’s chancellor, Angela Merkel, was once journeydeepakagain in an uncompromising mood. National interest and political expedience were no less powerful motives which proved critical in decisions taken in Berlin, Frankfurt and Brussels on the fate of Cyprus.

The euro has faced increasingly powerful challenges in more than a decade since the currency was introduced. The case of Cyprus is a watershed. Recent events confirm two main trends which were emerging for a number of years. One, the euro is a troubled currency whose problems do not seem to go away. Second, the survival of the European currency depends on one member-state, Germany, by far the most powerful country in Western Europe.

Germany’s domination thus sustains the single currency in the eurozone in the short run, but throws the entire project in its current enlarged form in doubt. Such power dynamic puts Germany at the center, and the rest on the periphery, perhaps with the exception of France, which also must go along with Germany’s leadership, despite sometimes diverging views between Berlin and Paris. It makes the eurozone not a community of equals, who are in the currency union voluntarily, but an empire with one ruler and many ruled, utterly dependent on the center of power. The economic crisis extending throughout Europe, but hitting Ireland and countries in the south hardest, is alarming.

We see the current state of affairs polarizing much of the European continent. We see rightwing, nationalist sentiments pushing elites who govern more and more to the right. Even so, the peoples’ frustration mounts, and we must ask how far these governing elites are likely to go to assuage the scale of discontent. These are reasons for instability and conflict, and far from the idea of unity and peace in Europe envisioned sixty years ago after two devastating wars.

Deepak Tripathi is a British historian with a particular interest in the Cold War and the post-Soviet world. His latest book A Journey Through Turbulence, published by Dignity Press, is out now. His works can be found at: and he can be reached at:


Deepak Tripathi is a Fellow of the Royal Historical Society and the Royal Asiatic Society of Great Britain and Ireland. His works can be found at: and he can be reached at

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