The immediate banking crisis in Cyprus looks very close to reaching resolution but, as Felix Salmon notes, this isn't the end of Cyprus's troubles or the geopolitical contest over Cyprus's future.
In the Europe vs Russia poker game, the Europeans have played the most aggressive move they can, essentially forcing Russian depositors to contribute maximally to the bailout against their will. If this is how the game ends, it's an unambiguous loss for Russia, and a win for the EU….
Of course, the game does not end here. It's unlikely that Russia will appear bearing a better deal at some point in the next 24 hours, but the hit to Cyprus's GDP is going to be so enormous that staying in the euro over the long term, absent another round or two of massive debt relief, is going to be extremely difficult.
This deserves more attention. In the first place, the Europeans may be playing poker but the Russians are not. The Russians are playing something closer to preferans, which was very nearly the Russian national card game in the 19th century and is still quite popular there. Preferans resembles bridge, in which players make bids or contracts for how many tricks they will take. The other players then try to win tricks away from the top bidder, hoping to make him come up short on his contract.
But sometimes in preferans every player passes during the bidding segment and no one claims the contract. The situation is known raspasy. At this point the goal of the game changes: players need to avoid tricks and try to force other to take them.
It seems to me that we have just gone through a round of raspasy in Cyprus. Neither the European Union nor the Russians really wanted to win this trick. But the Russians played their hand very carefully and the trick went to the Europeans.
What penalty will the Europeans pay for winning this trick? Well, for one thing, they may find themselves responsible if the financial health of Cyprus continues to deteriorate.
"By stepping back from the turmoil, Russia can now watch European leaders struggle with what promises to become an even bigger money pit. Having helped break the banking system in Cyprus, Europe now owns it," NBC's John Schoen writes.
The costs for Europe could be even more extreme than this. Because of the way the deal was structured, the Cyprian political class will largely be able to avoid taking responsibility for the deal. The Parliament is not even voting on it. But the European Union, through its various institutions, has put its stamp on it.
With some predicting the Cyprian GDP could drop by 23 percent or more in quite short order on the back of this deal, there's substantial room for political backlash against this deal. The Cypriots will be angry at the Europeans who they will, quite accurately, think foisted this deal upon them without their consent.
This will be the trick that Russia wants to win. A Cyprus in rebellion against the European Union would not doubt find an excellent friend in Russia, which wants a new strategic Mediterranean ally (Syria isn't cutting it these days) as well as a way to prevent the EU from supplying more of its own natural gas.
That's the long game for Russia. It didn't want this trick. And, fortunately for the Russians, the Europeans didn't even understand what game was being played.
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