Cyprus Account Seizure Reaches Beyond Russian Oligarchs

The news has come as a bit of a shock over the weekend — and continuing into the week — as the government of Cyprus has announced that it will be seizing a fraction of all deposits in return for a EU bailout of Greece’s smaller mirror state. Most of the news has focused on the threat to small depositors in a monetary union theoretically characterized by left-of-center concern for individual depositors; the outrage of Vladimir Putin on behalf of his stable of oligarchs and Russia’s inability to do anything but bluster (Cyprus is popularly perceived to be a haven for Russian money-laundering); and the more or less undeniable fingerprints of the Germans on the whole mess.

All of these things are to some extent true. But lost in this is the signal that the EU is sending to aspiring states, and what this means for the rule of law.

Cyprus was never one of Brussels’ favorite children; only Greek temper tantrums and a threat of a block on future expansions allowed the divided island into the EU in the first place. The Germans and their allies were leery of what they saw as yet another Greece, and so the decision to demand a pound of flesh was easy both as a matter of lingering enmity and as a matter of size (trying to force these conditions on Spain or Greece would be another matter altogether). The Germans are busy washing their hands of responsibility while also demanding that Cyprus comply and reduce the size of its banking sector (read: force Russian oligarchs to do business elsewhere).

Yet this can only serve as both a warning shot to and a bad example for former Soviet states desperate to enter the European Union. With the exception of Belarus, each European-facing state has been working desperately to join the EU and to turn away from Russia; yet this shows them clearly that if they are not beloved of Berlin, then they can be punished for any failing well beyond what EU “core” states can expect.

As each is not yet an EU member state, that is at least a plausible assumption to make.

More worrying is that this is the very definition of a bad example. The protection of small depositors is considered very close to sacrosanct throughout the Union; as in most developed financial systems, deposit insurance is intended to create a safe, stable, trustworthy banking system. Yet making that promise and then breaking it out of what could only be called punitive motivations tells every single former Soviet state that rules are made to be broken.

It is very hard to take seriously European preaching on the importance of the rule of law when they are willing to toss the law aside to keep German MPs happy.

This is a dangerous precedent, and whenever Europe speaks on freedom, human rights, respect for the law, and other, traditional concerns, they can expect to hear — even if not spoken out loud — the retort of “But, Cyprus.”

Image Copyright John T Takai /