Cyprus Crisis: A Triumph For Russian Isolationists

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Contributed by Valentin Mândrăşescu, Editor of Reality Check @ The Voice of Russia. Former commodity trader, economist, journalist. Nomadic lifestyle. When not in Moscow, he can be found travelling across Eastern Europe. Areas of interest: world economy, East European politics, and the theory of propaganda.

The mainstream media usually presents a very unbalanced view on the events in which Russian interests are involved. The “Cypriot bailout” is no exception. These messages are wrong, and they miss the most interesting part of the story. I can tell that in Moscow there are many people who are jubilating right now. Their wildest dreams have come true. “Russia should be grateful to the European Union and we should send them a gift or something”, wrote one of the pro-Kremlin journalists on Sunday.

The Russian ruling elite is not monolithic. There are at least two different camps, vying for power and control over the state ideology.

One such group believes that Russia can become integrated in the Western world and can be someday accepted by West as an equal partner. Contrary to the popular belief, this group is quite influential, and a big number of oligarchs support its views and political actions. From the beginning of this year, this group has been running out of luck and now it is risking running out of money.

The other group believes in Russia’s self-sufficiency and would like to see the demise of the world’s dollar-based monetary system. Members of this group don’t trust the West. It is easy to see that this group is celebrating right now. Their opponents have received a near-mortal blow.

The official position of Vladimir Putin has always been anti-offshore. Not many Western journalists are willing to tell their readers about the following quote from 2002:

“There are reasons to believe that the rules for the offshore funds will become stricter. I am not telling you that your funds will be frozen tomorrow, but if such decision is made, you’ll get tired of swallowing dust in the Western courtrooms, trying to unfreeze your accounts.”

In 2011, Putin repeated the warning, while addressing the participants of business forum:

“I would like to ask the businesspeople to stop hiding their money offshore. The ‘offshore legacy’ of the past is a real hindrance for the development of Russia.”

Most of the oligarchs did not listen. Some members of the political elite din not listen. Somehow, they all believed that only the Soviet State had the privilege of expropriating private property.

In late 2012 and 2013, Kremlin seemed to have given up on convincing the wealthy Russians to come onshore and started a program of political and legal “arm-twisting.” The members of the parliament and the top-ranking state officials are now legally barred from owning shares in foreign companies and from owning bank accounts or financial instruments outside of Russia.

Earlier this year, in his “State of the Federation” speech, Putin declared that the process of “de-offshorization” will become a top priority. Many experts interpreted this as a warning addressed to the oligarchs and politicians. Now, all the Russians who have money deposited in offshore accounts have a good reason to bring their funds back to Russia. If Cyprus is not safe, then the whole Europe is not safe, then the West is not safe.

The only advantage the West had over Russia was the illusion of the sanctity of private property rights. Now, this illusion is gone forever. Russian oligarchs don’t know history, so the expropriation of 1933 and the default of 1971 mean nothing to them. They had to learn the hard way. In this context, it becomes clear why Vladimir Putin rubs the salt in their wounds, telling the state-owned TV on Sunday that “Russia is still interested in de-offshorization” of the economy. The owners of Cypriot bank accounts will have to ask for personalized bailouts, but any bailout will come at price.

The Eurocrats managed to kill the illusion of the “European fairness” and the “European rule of law”. No amount of state-sponsored propaganda would have been that successful. The future of the Cypriot and the European banking systems is grim. No matter how the Cypriot debacle is finished, the scared Russian money is going home. Contributed by Valentin Mândrăşescu.

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