The whole reason behind Cyprus’ sudden decision to impose a new tax on banking deposits was due to the country’s need for a bailout of at least 10 billion euros from the European Union. The tax was a condition of the help.
Russia, whose political and economic elite holds anything between 10 and 20 billion euros in those deposits, hinted early on that it could help out financially to such a friendly country in dire needs. With foreign exchange reserves worth $537 billion (as of January), it certainly could afford it. But it decided not to.
Russia flexed muscles, reminded of its financial powers and rubbed the West in its weaknesses, but showed no camaraderie. Ukraine should remember this modus operandi, and keep it in mind at all times.
Ukraine is currently in the middle of negotiations with Russia over gas price, management of Ukrainian gas transit network, and so on. Russia has been trying to bully Ukraine into signing a two-way consortium to manage its gas transit system. But there are more conditions being attached to it.
Prime Minister Dmitry Medvedev said recently that Ukraine has to guarantee that the consortium agreement with Gazprom cannot be annulled under any circumstances. For this, Ukraine would have to denounce the Energy Charter with the European Union because Gazprom’s involvement in transit in Ukraine would violate one of the basic principles of the charter, under which the same company cannot control both supply and transit.
Ukraine would lose out if it accepted Russia’s conditions, and would not necessarily gain anything, if Russia decides to back out of the deal, as it did with Cyprus.
The failed Russian bailout of Cyprus is a fantastic case study that shows that Russia is driven by self-interest only, and chooses to demonstrate power just for its sake. Ukraine should build its strategies taking this precious knowledge into account.
