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« Italy Trembling on the Brink | Main | Greece's Scams, Extortion, and “Suicidal” Possibility »

Manna for Bankrupt Cyprus

In Greece’s chaotic wake bobs the listing Republic of Cyprus, soon to be the fifth Eurozone country, out of seventeen, to get a bailout. By June 30. And on July 1, in the ironic European manner, the tiny country on a Mediterranean island that is geographically closer to Turkey, Syria, and Israel than any European country, will automatically rotate into the Presidency of the Council of the European Union for a six-month term—mechanized democracy at the EU level.

Only last year’s €2.5 billion loan from Russia has kept it afloat. Its economy is shrinking, unemployment is at a record, and real estate is collapsing after a phenomenal bubble and after an even more phenomenal nationwide title-deed scandal that bankers, lawyers, and developers were colluding in to their immense benefit. And it has taken down the banks. [For more on that fiasco, read my post from last October.... Another Eurozone Country Bites the Dust].

So the banks need to be “recapitalized.” As is the case in Eurozone bailouts, the losses will be socialized to taxpayers in distant countries. €1.8 billion, or 10% of GDP, is needed just to recapitalize its second-largest bank, Cyprus Popular Bank. Many more billions will be needed for the other banks. And as the first bailout is never enough, more money will be needed for the second wave. The government itself needs to be bailed out too; it has been cut off from the markets and can’t get its deficits under control—amazing how a country with 803,000 people can concoct problems of such magnitude.

“The issue is urgent,” said Finance Minister Vassos Shiarly on Monday because “recapitalization of the banks must be completed by June 30.” And on Tuesday, a government spokesman confirmed that a bailout would be “one of the options.” It would be large—”a comprehensive request covering not only present circumstances and the recapitalization of the banks but also future needs,” Shiarly said. But there is one thing Cyprus has that the other four bailed-out debt sinners don’t have. And it changes everything.

Vast deposits of natural gas. Noble Drilling announced the discovery last December. Based on its Cyprus A-1 well, it estimated that the field off the southern coast held up to 8 trillion cubic feet of gas. There is a good probability of other gas fields around Cyprus. And a mad scramble has ensued.

15 major oil and gas companies and consortiums, among them Russia’s Novatec, Italy’s ENI, France’s Total, and Malaysia’s Petronas, are bidding to start exploratory drilling activities. Novatek may also invest in transport, processing, and liquefaction facilities (to produce LNG for export). Chinese firms have submitted proposals. Israel is working with Cyprus on a “unitization agreement” for reserves that overlap the border between their “exclusive economic zones.” And they’re bent over plans for a pipeline between their gas fields.

Alas, Cyprus has been a divided island since 1974: in the south, Greek-speaking Cypriots; in the north, Turkish-speaking Cypriots—who proclaimed the Turkish Republic of Northern Cyprus, recognized only by Turkey. So the gas find is a bit delicate ... to the point where NATO member Turkey sent warships to the area to pressure Cyprus to halt exploration until their dispute is resolved. To defuse the situation, Commerce Minister Praxoula Antoniadou claimed that the project would take years of planning, exploration, and construction. By the time revenue starts flowing, he said, Cyprus would be reunified, and all Cypriots would benefit from the manna.

The gas could be exported to continental Europe which currently relies on expensive Russian gas. But a pipeline would have to cross Turkey, and current tensions make that a non-option. Hence the necessity for a liquefaction facility, from which the gas could be exported as LNG by tanker to anywhere in the world. It would cost perhaps €7 billion, more than a third of the country’s GDP. Yet companies are eager to build and fund it.

The promise of money! Despite its fiscal nightmare, corruption, teetering economy, and ruined banking sector, Cyprus won’t have a problem attracting a bailout, either from the Troika, or if they bandy about the noxious terms of structural reforms and austerity, from Russia, China, or some other side. For them it would mean an investment in a scarce resource, a bridgehead to the EU, and possibly a controlling stake in the country.

On June 17, when Greeks try again to choose a government, they’ll decide their country’s fate—or not. One thing is for sure: whoever wins will push for more bailout billions, but forget the conditions, the structural reforms, and austerity. Just the money. They’d watched the Spanish Prime Minister proclaim victory. Read.... Greece’s Scams, Extortion, and “Suicidal” Possibility.

And here is the hilarious but brutally truthful video from down-under comedians Clarke & Dawe that in 2.5 minutes summarizes better than anything else the entire Eurozone debt crisis. 


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Reader Comments (3)

how does every article i read about crete FAIL to mention that it's population is 50,000 people TOTAL>
meaning there are less than 20,000 working age males between the age of 16 and 55.
yea. 20,000 people getting 3.5 billion dollars????????, that's almost 200,000 dollars for every working age male.

------------and testosterone, i followed you articles about crete last year, regarding the explosion, and i also follow israel blogs that were talking about the gaz found in the meditterranean that turkey is vying for. the more frightening thing in the future is where turkey will pledge its political loyalty.

turkey historically wanted nothing to do with russia, and now, it is in a perpetual game of trying to placate america despite it's natural anti-israeli stance ( for many reasons including natural resources ) . Turkey's actions with regard to the syrian conflict, and oncoming iranian conflict will be measured by the u.s. and turkey will, one way or the other be victimized. either by the axis of the u.s. or the axis of russia/china/anti-u.s.----- it's just a matter of by whom and when.

one thing about living in the u.s. is you have the pacific and the atlantic as your two best friends if the world goes to shit.
June 13, 2012 | Unregistered Commenterzeev
Don't forget about Canada to the north!
June 13, 2012 | Unregistered CommenterJaneb
zeev - actually I was writing about Cyprus (independent country), not Crete (part of Greece).
June 13, 2012 | Registered CommenterWolf Richter

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