Cyprus and Russia [Not Forgetting the Ukraine and Belarus]

Cyprus is a fascinating island. In the centuries when the island was occupied by the Ottoman Empire the Sultans mostly left the Greek majority population to a semi-autonomous existence under the rule of an ethnarch - the acknowledged leader of an ethnic group - who in this case was the Archbishop of the Orthodox Church. By a complex pattern of historical accidents the Archbishopric had developed strong links with the Orthodox people of the Russian Empire, particularly as a significant landowner in the Ukraine. The Archbishop's land was seized by the Communists and fell under the appalling mismanagement of the collective farm system: but the lost wealth was lamented and remembered through subsequent generations of Cypriots.

Britain grabbed the sovereignty of Cyprus at the Congress of Berlin in 1878, when the weakened Ottoman Empire was compelled to surrender some territories in order to be allowed to keep the rest. Disraeli's government saw Cyprus as a useful base in the 'near east', close to the main Suez Canal route to India. Come the nineteen sixties, and despite the abandonment of the Empire, Britain was under pressure from the USA to maintain a presence in Cyprus because its location gave the island a unique advantage as a listening-post into communications throughout the Middle East and the Soviet Union. RAF bases on the island also provided a staging-post for transport into the region, not least to get emergency supplies from the US to Israel  in times of war. Thus when Cyprus was granted independence in 1960 [a situation deeply compromised by the resistance of the Turkish minority to the majority wish for union with Greece] Britain retained the sovereignty over the key bases, which included the listening-posts: this remains the situation now, of huge value to the USA in relation to Iraq, Afghanistan and Iran.

Both before and after independence the strategic situation of Cyprus was of great interest to the USSR, which led to the KGB encouraging the development of a tourist trade from the communist Warsaw Pact countries; some of which was a cover for espionage. Among the 'tourists' and alongside the spies were the gangsters who were tolerated as 'fixers' in the dysfunctional planned economy, who began to make deposits in and investments through Cypriot. banks. The collapse of communism and the disgusting economic free-for-all that the Yeltsin regime could not control led to a massive expansion of the flow of funds into the familiar and highly accommodating Cypriot banks. Cyprus was a member of the EU, and this made the island an even more attractive money-moving location for the nouveau riche from the former USSR. Tiny Cyprus has become one of the largest investors in the Ukraine and in Russia: returning funds deposited by large and small oligarchs from those countries. The tradition of the Greek-speaking Cypriots in regarding Greece as their natural partner led to Cypriot Banks investing very heavily in Greek state bonds and bank deposits: which has given them a massive 'haircut' as the Greek assets have become worth much less.

It is of huge interest to the Russian, Ukrainian and Belorussian depositors in Cyprus that the negative impact of the Greek collapse should not wholly be exported to Cyprus, diminishing the value of bank deposits on the island. Many of the richest Russians are very keen indeed that Cyprus should remain in the eurozone, and large loans [at least three billion euros] have already been made to Cypriot institutions. There is at least a probability that official Russia will become the saviour of the Cypriot banking system, by providing a bail-out that will preserve the valuations in euros of immense private investments that represent a significant proportion of the plundered national income from the past two decades. This potential twist in the eurozone crisis is well worth watching.