Cyprus chooses: a new path?

As I said before, lost on most of the UK media amidst the stateside razzmatazz, Cyprus has chosen a new head of state, and a communist one to boot. The former President Tassos Papadopoulos lost out in the first round vote, and in the second round of voting last weekend the President-elect Demetris Christofias was elected with 53.4% of the vote.

He seems an interesting character for a number of reasons. A communist, he was educated in Soviet Russia and described the collapse inwards of the Soviet Union as a “crime against humanity”. He has described the continuing British military presence on the island as a “colonial bloodstain” and, crucially, has decent relations with the Turkish administration in the north and is willing to talk to them. The North’s leader, Mehmet Ali Talat has already welcomed his election.

So interesting times in the South East Mediterranean. On the one hand welcome glimmers of progress in the impasse between the two communities on that bloodily divided island, on the other a hardline anti-British troops communist in charge of a member of the eurozone.

And here’s an interesting wrinkle. Given President Christofias has more economically in common with VI Lenin than Adam Smith we will see real pressure on the European Central Bank (ECB) in Frankfurt. Who knows, we might just for the first time see some gumption from it. Under the rules of the eurozone each member state (of the eurozone) in order to avoid destabilising the bloc as a whole has to obey certain rules on economic management. Public debt cannot be higher than x%, fiscal policy must only do y and such like. The rules were glossed over when Germany, then France, then the Netherlands breached them, and the economic credibility of the ECB and the euro took a knock on the international capital markets. They were further undermined when Greece admitted lying to the ECB for a sustained period last year.

Cyprus acceded to the eurozone in January and is now obliged to abide by all the rules of the ECB. And Cyprus is no France or Germany. They can expect a firm (and doubtless mightily unpopular) slap from far away Frankfurt the moment they step out of line.

So to broaden the canvass a little, much as he’s a communist, economically we can expect to see the supranational constraints of being part of the biggest currency bloc in Europe restrain the ambitions and policies of the democratically elected leader of a member state. By signing up to the eurozone the people of Cyprus hardwired and formalised the ‘interconnectedness’ of their economy with that of the rest of the EU and eurozone, so it is only right that the rest of us can now expect subsequent leaders to modify their policies to work within the rules as established by the ECB.

So his election creates a conundrum. He will not be able to do that much to the economy, so he can either turn his attentions to those policy areas he can actually do something with, or have a rammy with Frankfurt. The outcome will depend upon realpolitik. I’m working on another blog entry called “The EU: power pooled is power retained” with apologies to Enoch Powell who said the same of devolution, and this is a good example of what I’m trying to get across in that piece. If the democratically elected leader of a sovereign state really wanted to break the rules of the eurozone, (or the EU) the only way out is, well, out. I do not hold to the view that Cyprus has, forevermore, signed up to the rules, only for so long as the people of Cyprus are willing to be bound by them. The question is: are they willing to take the pain that it would mean to get out? We watch with interest.