Cyprus' unique political culture, as well as its relationship with Russia, played an important yet underappreciated role in the island's recent economic crisis.
Russian Prime Minister Dmitry Medvedev meets with former Cypriot President Dimitris Christofias in 2010. Wikimedia commons/ Kremilin presidential press and information office. Some rights reserved.
Most commentators on the bailout debacle in Cyprus have focused narrowly, if understandably, on economic arguments and considerations. Largely absent from the discussion have been considerations of either political culture or public attitudes. Specifically we refer here to a political culture of deferring urgent or controversial decisions, and public attitudes pointing to a markedly pro-Russian stance in comparison with other international actors. There would have been fewer surprises for the international community if both these factors had been taken into account.
Political Culture, Legitimacy and Clientelism
Outside of macroeconomic considerations, there are additional reasons why the situation developed as it did specifically for the Republic of Cyprus. First, it is a small, corporate society. The Greek Cypriot population totals perhaps 700,000, its core decision-makers number in the few dozens, and, as is abundantly clear to anyone engaging with politics or public policy on the island, they - along with their families and friends - all know each other. As the columnist Michael Lewis argued in 2009 about the Icelandic banking crisis, a small and enmeshed polity - with an even smaller and more enmeshed set of elites - poses particular challenges.
In such a situation, who will press and old friend to change course, blow the whistle, push for a measure which could cost cousins their jobs or refuse to help a sister’s children? Indicative is the developing scandal, now under investigation, in which debts totalling into millions of euros were allegedly written off by Cypriot banks just prior to the bailout agreement. Cited beneficiaries are politicians, former MPs, local government officials and others connected to political parties, as well as those related to members of banking institutions’ executive boards.
Because the Republic’s politics operates on a corporate and clientelist basis, the stability and authority of the presidential executive is privileged above considerations of transparency, accountability or responsiveness for the public good. This results in a democratic deficit and well-placed doubts about good governance. This deficit became apparent in July 2011 following a munitions explosion by the Mari power plant. Despite the fact that this knocked out half of Cyprus’s generating capacity, killed 13, injured scores more, cost the economy up to €2.4 billion and sparked a public outcry, there was no institutional mechanism with which to impeach or otherwise force from office the then president Dimitris Christofias. The democratic deficit has been further illustrated in recent days when it emerged that dozens of Cypriot politicians and their families, including relations of President Nicos Anastasiades, had allegedly transferred money overseas in the days immediately before the bailout was announced.
Cyprus also follows the pattern of other post-colonial states where the departing colonial power left a vacuum filled by unstable new groupings and institutions jockeying for power. Indeed, the republic that emerged in 1960 when the British withdrew was no-one’s first choice. While Greek Cypriots supported enosis (union) with Greece, Turkish Cypriots wanted taksim (partition) along ethnic lines. Ethnic violence was severe enough for the UN to send peacekeepers in 1964, where they remain to this day. Thus Cyprus was stymied by internal challenges to its legitimacy from the start, a situation dramatically truncated by Turkish military action in 1974 which formally divided the island.
Since then Cypriot institutions have ostensibly been in a holding pattern pending solution to this division, which became known as the Cyprus problem. The Republic’s international legitimacy today thus disguises the provisional nature of its own institutions. Meanwhile many parts of public life have effectively played a waiting game with the logic that, when a solution comes, all things will change, and a habit of deferring decisions has become entrenched. This is demonstrated by the repeated failure of negotiations to resolve the Cyprus problem, including the most recent round of 141 meetings between September 2008 and January 2012 which ended inconclusively. The UN is now downgrading its presence. Although peacekeepers will stay, UNDP-ACT - the UN and USAID co-funded peacebuilding programme - is scheduled to be wound down after this year.
Some of those in Brussels and Frankfurt involved with the recent bailout negotiations held serious misconceptions as to how Anastasiades of the centre-right Democratic Rally (DISY) - himself elected only in February - would proceed after imposition of a one-off levy on savings was mooted: There was an expectation that he would turn around and instruct his party to vote for it after all - that he wouldn’t be going to vote if he hadn’t made sure the desired outcome was there.
Yet this did not happen. Not a single Cypriot MP voted for the levy, which was nevertheless imposed days later. Meanwhile Anastasiades immediately sent the then finance minister Michael Sarris to Moscow to ask for help on top of a €2.5bn loan provided in late 2011.
Public Attitudes: Russia the Honest Broker
To many outsiders, Cypriot eagerness to turn to Russia as an alternative to the EU’s bailout proposal is mystifying. As Nikos Chrysoloras, Brussels correspondent for the Greek newspaper Kathimerini, put it: “the Cypriot government seemed willing to offer so many concessions to Moscow as to effectively turn the island into a Russian overseas territory. Why anyone would celebrate this development is not clear."
Yet Christofias’s party, AKEL, has deep connections with Russia going back to the Cold War. Although Cyprus was neutral during the Cold War – indeed, it joined the Non-Aligned Movement – a significant number of the Cypriot centre-left political class were educated in the USSR, including Christofias himself. For the Cypriot centre-right, such as Anastasiades and Sarris, Russia represents the foundation of the Cypriot offshore banking sector that underpinned the economy.
But it is not just parts of the political class that has courted Russian interests. Many Greek Cypriots have a benign view of Russia, markedly more so than for some other international actors. As part of an EU-funded project, we undertook a public opinion survey in June 2010 in the Republic of Cyprus. Although collected in the early stages of the eurozone crisis, results reflect views predating the current financial emergency in Cyprus, as well as the 2011 loan from Russia. They therefore reflect attitudes grounded in more than the most recent of events.
Greek Cypriots were asked, among other things, to indicate the extent to which a range of countries and organizations had a positive or negative influence in achieving a solution to the Cyprus problem. The overwhelmingly positive views of Greece and similarly negative opinions about Turkey were expected. But less so were the views of the EU and Russia compared and in contrast to opinion about the UN, UK and USA. A large majority of Greek Cypriots indicated that they had a poor opinion of the role of the UK (76%) and the USA (68%). A third had a negative view of the UN, which has, for example, overseen multiple rounds of negotiations, maintained a peacekeeping mission for decades and funded numerous infrastructural, civil society and reconciliation initiatives.
At the same time Greek Cypriot perceptions of the EU and Russia fared much better. While 13% was critical of Russia, less than one in ten had a similar view of the EU (9%). With regards to positive views, Russia (35%) polled lower than the EU (46%) but still had a much higher approval rating than, for example, the UN (20%).
Meanwhile Russia, the EU and the UN polled essentially the same – around the 40% mark - as neutral with regards to resolving the Cyprus problem. In other words, Russia was ranked on par with the main international organizations on the island as a potential ‘honest broker’ or unbiased mediator. The same could not be said of either the UK (12%) or United States (18%).Overall Greek Cypriots tended to cite Greece, Russia and the EU as having a positive effect on finding a solution to the Cyprus problem. Turkey, unsurprisingly, was seen as negative, as were (to a lesser extent) the UN, UK and USA.
Moreover, Greek Cypriots in our focus groups in February 2011 said that Russia was particularly supportive of the Greek Cypriot cause. At the same time, the influence of American and British (but not Russian) nationals on the UN, as well as their actual presence within the organization itself, was seen as detrimental to resolution of the Cyprus problem.
Given positive opinion about Russia among Greek Cypriots, Russia’s refusal to provide further financial assistance to the Republic likely came as a shock. But it should not have been a surprise. In the months before he left office last February, Christofias complained that he had trouble getting his Russian counterpart Vladimir Putin to speak to him on the phone. Like China in parts of sub-Saharan Africa, Russia does not impose conditionality – but does seek to protect its investments. An economically troubled Cyprus whose EU membership may be in doubt is of little use to Moscow. Moreover, Russian money fleeing to offshore havens reflects a lack of confidence in property rights and the rule of law in Russia itself as much as outright money laundering. Putin has wasted little time in demanding that Russian officials and senior managers in state corporations close their offshore accounts by July, thus re-establishing the Kremlin’s authority over some of the billions that have left Russia since the 1990s.
Conclusion
The prognosis for Cyprus is far from clear. This applies as much to its political as its economic future. On the one hand, much debate surrounds the impact that the Cypriot bailout terms will have not just on the Republic but, more broadly, on the eurozone and the EU. On the other, there is still the decades-old question of the island’s division.
Our 2010 survey noted that the EU, UN and Russia were the only significant international actors which Greek Cypriots could consider ‘honest brokers’ in resolving the Cyprus problem. But at the time of writing, the EU’s reputation has suffered in the eyes of Greek Cypriots. Meanwhile, Russia has pointedly refused to provide further assistance to the Republic, and simultaneously the UN is likely to downgrade its presence on the island
In this changing international framework, who may the Republic look to as an acceptable mediator to broker settlement of the Cyprus problem? The potential for the soft-power that the EU could have exercised, a role which Greek Cypriot opinion supported in 2010, effectively ended with the current financial crisis for which the EU is largely held responsible. Resolution of the island’s division is almost certainly further in the future than ever.
This article is based on a project funded by EuropeAid in 2010-12.