An Interesting Bailout in the Offing - Cyprus

There is a sideshow going on in Europe this week. All eyes are on the Spanish bank bailout, but there is another bailout in the works – Cyprus. I believe that a Cyprus deal will be agreed to within days. The question in my mind is, “Who is going to put up the money?”

Let me first say that the problems in Cyprus are very small compared to Spain. If it were not for the fact that the rest of Southern Europe is on fire, Cyprus would get a very nice deal from its “friends” in Brussels. I think the country needs about Euro5B to shore ups its banks, another E20B for the Treasury. Chump change these days.

I have written about Cyprus and the 2011 military base explosion that brought the country to its knees (Link, Link) . It’s an interesting story with an interesting outcome. The Russians bailed out Cyprus with a Euro 3b loan.
Why would the Russians be willing to bailout a country who is a member of the EU and whose currency is the Euro? Three reasons:


(I) - Naval bases/basing rights. The Russians would love to have a deep water port in one of the more strategic areas of the world:

(II) - Energy. There is a very good chance that there is a large supply of natural gas in Cyprus’s territorial waters.
(III) - Money. Russians have been using Cyprus as an offshore banking center for years. If Cyprus’s banks are in trouble, then some of that money is at risk.

There are many parties who have an interest in what happens in Cyprus. This includes the usual list of bankers, technocrats from Brussels and IMF types. But Cyprus has some other folks who might have a say in the outcome of this, including:

- NATO.

- The US military

- The CIA

The very last thing that this group wants is to see is that the Russians get further involved in the domestic affairs of Cyprus.

In the crazy world of sovereign bailouts, we may find Cyprus in a unique position. There may be competition for who provides the bailout cash. If one was a Cypriot, and faced with the need to go hat in hand for help, which way would they go?

To Brussels. Where the needed money will be made available (it already has been agreed to) but the terms will conform to the other EU bailouts. Cyprus will have to accept the austerity that comes with these deals and “supervision” from the North. There will be strings attached, and this money is not cheap.

To Russia. Where the terms could be more attractive. Few strings. Cheap money. (Russia has oodles of Euro reserves earning nothing.) The quid pro quo would be to allow Russians to base vessels. The “upside” for Cyprus would be that their new friends in the East would also provide the money and resources to exploit that gas field (in exchange for a big rake of the profits).
,

I have to believe that the game of chess I describe is happening at one level or another as I write. Cyprus is strategically too important.

My guess is that the deciders in Brussels (and D.C.) will try to keep the Russians out, and keep Cyprus in the EU fold. This would suggest that Cyprus is offered a deal that strays from that offered to Spain. It would have to be far superior to that offered to nearby Greece.

Should a “sweet deal” be in the offing for little old Cyprus, it would throw the whole ball of wax into the fire. The people in Ireland, Portugal, Greece and Spain would hit the streets.

I close this with a section of my September 2011 report on Cyprus. If you think that the CIA is not involved with Cyprus in June of 2012, you’re wrong.

A man believed to be one of Russia's most capable agents, arrested in Cyprus this week as a suspect in the spy ring, has almost certainly fled the island, the justice minister, Loucas Louca, said.
.
Less than 72 hours after he was last seen on Cyprus, speculation is mounting that Christopher Metsos, the alleged paymaster of a Russian network operating under deep cover in the US, was allowed to "disappear" by a government which caved in to pressure from Russia.

Source