Number 212 | December 5, 2012
By Joshua E. Keating
Published in the Annual Special Issue of Foreign Policy
Tiny Cyprus, like many countries in Southern Europe, has needed bailouts tokeep its economy afloat during the eurocrisis. More often than not, however, it has turned to Moscow rather than Brussels for the cash, raising concerns about whether one of the European Union's more recent members is more oriented toward East or West. Russia gave Cyprus a $3.1 billion loan in 2011 and, as of this writing, is considering ponying up another $6.2 billion, equivalent to morethan one-third of the country's entire economy.
Cyprus was a controversial case when it joined the EU in 2004, because of both thedispute over the island's Turkish-dominated northern half and its status as an opaque haven for Russian investment. Indeed, recent years have seen increasingly close ties between the two Orthodox Christian countries. Part of the attraction is practical: Moscow imposes fewer conditions on its loans than the austerity-insistent Europeans. But Russian-educated President Demetris Christofias, the only communist leader in the European Union, is also staunchly pro-Moscow in his foreign policy and a frequent critic of NATO. (This has been particularly controversial lately, as Cyprus took over the rotating presidency of the EU in June.) Russian businesses have invested heavily on the island, and the southern resort city of Limassol now has so many Russian residents thatlocals have taken to calling it "Limassolgrad."
It's also something of a security headache for the EU. Russian support helps bolster the Cypriot government's position in its conflict with Turkey over the status of the island's northern half. Russia, meanwhile, may see Cyprus as a valuable asset in its efforts to maintain influence in the Middle East. A Russian ship apparently carrying arms to Bashar al-Assad's embattled Syrian regime made a stop in Cyprus in January.
Both sides clearly see the arrangement as a win-win, and with 6 billion euros needed to fill a budget gap before 2015, Cyprus is looking for help from whoever will provide it. But it could well backfire as Europe reconsiders whether it should have admitted Cyprus into its club in the first place. After one failed round of negotiations aimed at resolving the dispute with Turkey, German Chancellor Angela Merkel couldn't have been clearer: Cyprus, she said, is a "problematic country" that should not have become an EU member.
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