Russia, a friendly country, an enemy or a threat to Cyprus?

Nicosia, 22 Mar The Russian invasion of Ukraine made the European Union appear as united as rarely when it comes to sanctioning the Moscow regime, but for some countries this policy of punishment comes at a higher price than for others, such as Cyprus, whose economy is heavily dependent on Russia. Since its independence in 1960, Cyprus has always regarded Russia as a friendly country and great defender of its political cause, especially after the Turkish invasion of northern Cyprus in 1974, a military action that, however, is reminiscent of Russia's with Ukraine: both justified their invasions with the supposed defense of ethnic minorities. RUSSIAN THREATS The fact that there have been good relations has not prevented Russia from time to time from time to time issuing threats against Cyprus, open or veiled. The most recent announcement was launched by the Russian ambassador to Nicosia, Stanislav Osadchiy, who said that Cyprus and other European countries that have imposed sanctions on his country have “shot themselves in the foot” and assured that Russian tourists will not travel this summer to Cyprus but to Turkey. “Russia uses Cyprus to foster Turkey's conflict with the European Union and the West in general. Now that Cyprus has been forced to ally with the West, Russia is threatening it and Cyprus is uncomfortable, not knowing how to react,” historian and journalist Makarios Drusiotis assures Efe. ECONOMIC “FRIENDSHIP” After the collapse of the Soviet Union in the 1990s, many expatriates from the former Soviet republics arrived in Cyprus and, following Cyprus's entry into the EU and the euro in 2008, “the country became a laundry of Russian capital,” he explains. “Russian money flooded Cypriot banks and created the housing bubble in the country. This was the root cause of the financial crisis in Cyprus in 2013,” he adds. After the economic collapse of 2013, the financial ruling class sought “alternative” solutions and invented “the sale of passports in exchange for the purchase of real estate,” says Drusiotis, referring to the Cyprus Citizenship by Investment program, the well-known “golden visas”. This program granted Cypriot citizenship to 6,779 foreign millionaires, of whom an estimated 42 per cent were Russians. In 2020, the Cypriot government was forced to end these visas after the Al Jazeera chain discovered a business selling passports to investors - some with criminal records - who did not meet the criteria necessary to be able to move freely around the EU. Among them were Russian oligarchs. IMPACT OF SANCTIONS Although the Cypriot economy has seen its Russian presence reduced in recent years, it risks being severely affected by the impact of the war on Ukraine. “The primary impact will be on the luxury real estate market, which has already been hit hard after the end of the Cypriot passport program,” the director of the consulting firm Sapienta Economics, Fiona Mullen, tells Efe, who recently published a newsletter on the impact of Russian sanctions on Cyprus. In his analysis, Mullen details that the tourism and real estate sectors, the luxury goods market, revenues from banking operations and services will be the ones that will somehow be hit the hardest, in the short or long term. “The impact of the war on Ukraine is expected to drop Cyprus's real GDP growth by 0.5 percentage points,” Mullen says, noting that the two largest banks in Cyprus, the Hellenic Bank and the Bank of Cyprus, are the least exposed. Less clear at first seemed the impact on the RCB Bank of Cyprus, which has assets of around 5 billion euros and is directly supervised by the EU's Single Supervisory Mechanism (SSM).” Until the end of February, RCB was 46.29% owned by the Russian bank VTB. On February 24, the same day it was sanctioned by the United Kingdom, RCB transferred its shares to the other two shareholders: Cyprus-based companies that are partially or wholly owned by trusts, whose final beneficiaries are not public. Last night the rating agency Standard & Poor's Global Ratings (S&P) announced that it was suspending its rating of RCB Bank in Cyprus “due to its relationship with the Russian bank VTB Bank” and “the transfer of ownership to Cypriot shareholders after the Russian invasion”, in what appears to be a preface to the bank's closure. Flora Alexandrou