The Cyprus-US tilt is irreversible
This is good for the economy but has longer-term Cyprus problem implications
Photo source: Wikimedia Commons.
If you have not paid attention to the Republic of Cyprus lately, you will have missed the huge structural shift in its political and business allegiances in the past few years.
Primarily under the previous presidency, the country had became infamous for flogging golden passports to Russian billionaires, wanted fugitives, autocratic governing families and others. An official investigation found that more than half of the citizenships had been granted unlawfully and they are now being slowly reversed.
A few years later, the US Federal Bureau of Investigation (FBI) is effectively inside government, “supporting” (possibly running, in practice) the sanctions programme; Cyprus was taken off the US arms embargo list in 2022 and the US is said to be helping to build a new helicopter and upgraded naval bases. The southern port of Limassol hosted the US nuclear submarine, USS Indiana, part of the 6th fleet, over the holidays.
If you go to the Twitter/X account of the US Embassy in Cyprus, you will see nothing but praise for the budding “strategic partnership”, solidified with a visit by the Republic of Cyprus president, Nikos Christodoulides, to meet the US president, Jo Biden, at the White House on 30 October 2024.
The economic impact
Meanwhile, as subscribers to my flagship monthly Sapienta Country Analysis Cyprus reports have known for some time now, Cyprus has lost pretty much all of its Russian tourists and, judging from anecdotal evidence (as there was never any hard data in the first place), new Russian professional services business has shrunk to naught.
No doubt there is still some ongoing business from those resident on the island. But after the UK and the US sanctioned prominent Cypriot lawyers and other professionals in April 2023, my strong impression is that the legal and accounting professions are far too scared to take on new Russian business or even to keep old clients.
Despite all this, in the last Sapienta report dated 20 December, I estimated that the Cyprus economy grew in real terms by 3.8% in 2024—way above the eurozone average. Perhaps in another article, I shall discuss why Cyprus has had such a Teflon economy regardless of these challenges.
It has been a long time coming—
How did the shift in allegiances happen? It would take another long article to go into details. But in brief, it has taken a while.
My hunch says it was a combination of Turkey being seen by the US as an unreliable NATO partner after ordering Russian S400s; the US then wooing Greece and later Cyprus with the first promise of an embargo lift in the Eastern Mediterranean Security and Energy Partnership Act of 2019; the US possibly threatening the Cypriot banking system with all kinds of nasties if it did not cut business ties with a lot of Russians on a US wishlist; and finally the war in Ukraine giving the Republic of Cyprus, which still has tens of thousands of unwelcome Turkish troops in the northern part of the island, a hard excuse to follow EU sanctions in full and without hesitation.
—but the pro-US tilt is irreversible—
Does this mean that decades of questionable business practices that flouted the spirit of international law and sometimes the letter of the law too, have suddenly disappeared? I gave Cyprus far too much benefit of the doubt after 2013, so allow be to be sceptical.
But I do think that a structural shift has happened. And that the pro-US tilt is irreversible. It has already brought tangible benefits for politicians, like the end of the arms embargo and heaps of praise. It will soon bring benefits to citizens in the lifting of visa requirements.
—is good for the economy—
It is also good for the economy more generally. While some individuals made a lot of money from being close to Russia, I believe that the small but powerful nexus of politicians, lawyers and real estate developers are finally waking up to the fact that it was absolutely terrible for Cyprus’ international reputation and long-term economic health.
I know for a fact that it deterred institutional investors who found Cyprus to be too high risk for money-laundering. I also strongly believe it was the reason why Cyprus remains the only Eurozone country that suffered a haircut (bail-in) of deposits, because its poor reputation for probity gave European politicians the excuse they needed to make an example of the little country.
—but it also has profound implications for the Cyprus problem
However, this new relationship with the US also means a massive change to what is possible when it comes to solving, or ending, the Cyprus problem. I shall write more about that in the coming articles.
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