The crisis on Cyprus can be a tough one to get your hands around and stay up to date on. I’ve been digging around; here are few links that should help clarify things.
How we got here — Cyprus’ banks dominate the tiny country’s economy. They house vast amounts of offshore money and are full of Russian money that’s tied to bad Greek debt. So Cyprus is essentially a big, fat Greek headache, but the heads that hurt most are German and Russian. Germany has been called on to bail Cyprus banks out, but Berlin resisted putting its taxpayers on the hook to bail out another irresponsible country. The fact that much of the money involved is Russian may have been a factor, too. The scheme to seize bank accounts resulted from Germany’s refusal, and the EU negotiations that followed. That scheme has become even more “progressive,” meaning it is aimed at the rich. Some depositors will lose 40% of their assets. Some large depositors will be wiped out almost entirely. Cyprus will not be seen as a safe haven for foreign money again for generations. Seizing people’s investments isn’t the kind of thing a government lives down. The European Union’s presence behind the heist could make Europe itself a bad bet. The problem with that is, banking dominates its economy. Take banking away and what does Cyprus really have? Other than its rough history with Greece and Turkey, that is. Take away the banking and you’ve got a tourist spot with lovely historic ruins that doubles as a flashpoint between Greece, Turkey, Russia, the EU, and NATO.
The bank seizure has caused so much fear that people are leaving Cyprus, but their money is not allowed to leave with them.
The Russian involvement makes for a tense predicament. Cyprus is part of the European Union. So are Poland, Hungary, and several other countries that have Russia’s gas pipelines running through them. Seize too much Russian money in Cypriot banks, and Putin could turn off some gas spigots until he gets it back. Russia’s Gazprom makes a mint off of its pipelines, so any decision to shut them off could hurt the Russian economy as much as it hurts the EU’s. But Russia has used its pipelines as economic weapons against Europe and former USSR possessions in the past. Using them in such a way now is not unprecedented. Putin is surely thinking about it between swimming shirtless and wrestling bears. The pipelines give Moscow enormous leverage over Europe.
For what it’s worth, and it may be worth a lot, Cypriots are not an armed people.
I’ll just leave this link here in case anyone thinks the U.S., EU, and Cyprus are so different that what’s happening there could not happen here. Something that can’t go on forever, won’t, and our debt can’t go on forever. There is no serious plan to deal with it. The Democrats want to raise taxes and spend even more money. Some liberals are already eying your 401k. The $18 trillion sitting in them as of last year is just too big a pot o’ gold to ignore.
Just for fun, it’s worth noting that Russia and the EU/U.S. are on opposite sides on Syria. The EU/US tacitly back the rebels, while Russia backs Assad, who hates Israel, which is an ally of ours, but toward whom Obama tends to be frosty. Syria has been a good customer of Russian-made weapons over the years. Syria has its terrorist army, Hizballah, eyeballing Israel 24/7 from Lebanon. They’re also operating in South America and rumored to be standing up operations alongside the drug cartels in Mexico.