EXCLUSIVE: BRUSSELS MULLING PRE-EMPTIVE ANNEXATION OF CYPRUS

The Slog

by John Ward

Business community discontent pushes EC into plans for total control

Draconian new property tax a condition of receiving bailout loan

Sources in Brussels allege that the European Commission has been exploring ‘stages of media information development’ in order to establish much tighter control over the immediate future of Cyprus. The bottom line will be on-the-ground  fiscal and financial policy management by technocrats. The move is being prepared in the light of a strong desire among influential public figures in Cyprus to get out of the euro as soon as possible. Sources on the island last night confirmed that the business and political communities there remain irreversibly unhappy about the deal reached with the Troika recently.

A three-stage media-spin operation is being hatched in Brussels to rationalise and disguise an effective annexation by the EC of Cyprus.

The first stage being followed at the moment consists of “it is all going rather well, the problem has been overstated, but the Cyprus banks are now fully stabilised, and the EC hopes very soon to be able to supply the Government with investment funds to speed up exploitation of offshore energy and mineral deposits, thus giving the island a more soundly based economy that it had before”. It is, of course, complete bollocks, but this part of the spin operation is already starting: the Cyprus Mail this morning confirms that ‘Cyprus is on track to get €3 billion by the end of June after the Board of Governors of the European Stability Mechanism (ESM) yesterday decided to show “solidarity” and grant, in principle, financial assistance to the troubled island.” On cue, FinMin Chairman Djisselbloem this morning added, “By providing loans of up to €9 billion the euro area member states are showing solidarity with Cyprus. The implementation of the conditions attached to the assistance should ensure that Cyprus can build its economy on a sustainable basis.” What he didn’t say, however, is that the interest rate will be 2.5%, and not be repaid for 35 years. Thus Cyprus is about to join Greece as a prisoner state in the EU.

The second stage will begin as follows: “Nicosia has been lying to us about the size of the debt problem. This is iniquitous but sadly true, and we told you so. They will now need more money sooner than we could have known. The haircut being applied to those who foolishly risked their money by investing in crazily high  interest rates will thus have to be much higher.”

We can expect supine euromedia to start peddling this one any day now. Effectively, the result will be total confiscation for larger depositors. The EC is hoping to cement this part of the rationale (and stifle opposition) by witch-hunting any examples of suspected wrongdoings among MPs. Already recognising that this rumour is widespread on the island, President Anastasiades issued a back-handed press release yesterday stating that ‘the government neither intends nor aims at penalising political life in Cyprus, [but] at the same time no one enjoys immunity with respect to the investigations into the circumstances that have led economic hardship.’

It’s already clear, meanwhile, that even the €10billion bailout needs some newly onerous taxes to get off the ground for Cyprus to receive it. Government spokesman Christos Stylianides said yesterday that a new property tax was being rushed through: “We must send a bill to parliament … because we all know that we need the disbursement of the first tranche,” he told Cypriot media. The new tax will be paid by property owners towards the end of September, and hopes to bring in a 150% increase on the Cypriot residency system, from the current €30 million to €75 million.

The Cypriot business community is rightly suggesting that this can only suppress consumer demand and worsen the island’s economic outlook.

The final part of the rationale will stress that, due to the Nicosian government’s corruption in tipping off its criminal friends, the EC has now established very tight currency controls, but these will have to remain in place for longer than they thought. Senior EC staff will thus have to oversee this process on the ground, and also assist in giving the political process technocratic help.

This last stage, if reached, would act as the rationale for a complete takeover of the island….almost a form of direct rule as existed during the 1970s troubles in Northern Ireland. To this, it seems, will be added some pleading about Cyprus having problems that could easily destabilise the entire EU, and so the EC must be hands-on.

As a programme of disguised annexation,  from the Belgian-Berlin gargoyle standpoint, this move is being mooted as vital: for the truth is that a growing number of politicians and senior businessmen on the island have spent the last ten days lobbying Cypriot leaders very hard for an immediate exit from the eurozone, a rapid default, and then the re-establishment of a new currency. This last, they argue, is vital if Cyprus is to become competitive again – because it will immediately drop like a stone in value.

The lobbyists argue (and they’re right) that without this approach, the Cypriot GDP could easily fall by 25-30% in the next two years, and result in inevitable political instability….perhaps even a Turkish move to take advantage of it and establish hegemony over the island.

Hence the urgent need for the EC to complete a de facto annexation in the guise of a ‘rescue them and protect ourselves’ approach.

“The destruction of Cyprus’s banking business and the removal of all credit for small business here means we now have nothing to gain at all by staying in the euro,” said a source on the island. “Our group has been stressing this constantly before and since the deal”.

But my Brussels mole says he doubts the potential success of any such move to leave.

“For once, the Commission has seen this one coming,” he told me, “And they’re keen to establish their power to control things on the ground. Cyprus is under half a percent of the EU economy and of little real significance. But any sign of [Brussels] weakness could easily make things worse in places like Italy.”

Also, lest we forget, Cyprus is surrounded by a fortune in energy and mineral deposits.