Jacques Sapir, PhD in economics, head of the Center for Studies of the Modes of Industrialization at the French Institute of Social Sciences, one of the leading French specialists in the area of defense economics, a specialist on the integration of France into the Eurozone, comments on Europe’s blockade of the “Island of Freedom”, which Cyprus has turned into in our days.
Jacques Sapir: The financial blockade is the result of the decision to ban bank transactions for the banks of Cyprus. In other words, from now on the Cypriot banks are able to perform only internal transactions within the island. They are cut off from their correspondent banks in the Eurozone and have no more access to the TARGET2 system, i.e. to the system of processing of cross-border transfers of the European Central Bank.
What are such measures driven by? Formally, they are driven by the lack of guarantees of the liquidity of those banks. In reality, the present state of affairs took shape back in June last year. So, this is not the real reason. The real reason is the voting of the parliament of Cyprus, which refused to accept the plan suggested by the EU and the famous Three, i.e. the European Central Bank, the EU and the IMF. The direct consequence of that plan was going to be a 6.6% levy on all deposits of up to 100 thousand euro and 9.9% levy on all bank deposits of over that amount. Naturally, the announcement of the introduction of such a tax provoked a strong reaction from not only the citizens of Cyprus, but also in other countries of the world. The parliament of Cyprus unanimously declined that measure. One must underline that no one single parliament member voted in favor of the measure, even among the members of the President’s Conservative party. There were some who abstained. And in response to that vote the European Central Bank made its decision.
First of all, it is clear that the European Central Bank in a way declared a war on the island. Secondly, that decision was not made by the Eurogroup, or by the Council of Ministers of the Eurozone countries, or the EU Council of Ministers, which according to the legislation are the only bodies authorized to pass such laws. That decision was made by an irresponsible technocrat. I am talking about the technical aspect because by its status that person does not report to anybody. That decision was made by Mario Draghi. And that is the issue! In this case we are looking at a violent action coming from the European Central Bank, which is unprecedented in history. This is an extremely difficult circumstance.
Jacques Sapir: That measure pours light on that special role that Cyprus plays in relation to Russia. Let us first clarify the figures: 90 billion euro is the total size of all deposits in the Cypriot banks; of that amount 37% does not belong to the Cypriots, 30% of those deposited sums belongs to businesses from outside of the Eurozone. 7% belongs to non-Cypriot Eurozone members, primarily the Greeks. So, 30% belongs to non-Eurozone countries, including Russians, but also the British. Especially given the fact that there are two large British military bases in Cyprus. In that category there are also representatives of the Middle East, the Lebanese, for example, since traditionally, Cyprus has played an important role for the Middle Eastern countries.
The Russian deposits in Cyprus, whether they belong to individuals or businesses, are estimated at 20 billion euro, which comes to 22% of the entire amount of deposits. Thus, taking that financial measure would hit individuals, but especially organizations. Because businesses use the Cypriot banks to organize their financial transactions. It is necessary to take into account that besides the 20 billion euro Russian deposits in the Cypriot banks, there are also 250 billion euros that have been transferred through the Cyprus banks to banks elsewhere. We are talking about the money that came from Russia for the subsequent transfer to other countries, or about money that came from other countries to be transferred to Russia. This means that Cyprus plays a fundamental role in the movement of capital and financial deposits both from Russia, and into Russia. This means that the European Central Bank has done serious damage to the Russian economy, as well as the economy of Cyprus. In the light of all that I said above, the sharp reaction of the Russian government, which via its Prime Minister voiced the threat of a sharp decrease of the euro denominated reserves of Russia’s Central Bank, becomes clear.
Speaking in military terms, perhaps, it is a collateral damage, but I don’t rule out the possibility that some members of the board of the European Central Bank on purpose voted in favor of that measure in order to «punish» Russia for its aid to Cyprus. This naturally will cause a rethinking of the relations between the EU and Russia, especially in the Eurozone issues. And that also explains that potential role that Russia could play in relation to Cyprus. It is a known fact, for example, that Gazprom acting via Gazprombank also formulated an alternative plan for the development of the economy of Cyprus.