Cyprus turns to Russia for love

Cyprus, which is heavily exposed to the Greek banking sector, has been one of the less covered fronts of the European crisis. Interestingly, as Dan Bilefsky reports, the country is turning not to the EU for help but to a friend farther East:

The Russian government last year gave Cyprus a three-year loan of 2.5 billion euros, or $3.1 billion at the current exchange rate, at a below-market rate of 4.5 percent to help it service its debt. Cyprus now needs at least 1.8 billion euros, or $2.3 billion, by the end of this month to buttress its ailing banking sector.

Officials say they hope to negotiate securing a new loan from Moscow as early as this week. Analysts say it could be as high as 5 billion euros. A loan from Moscow is the favored option, Cyprus officials say, because it would come with fewer conditions than a European Union bailout and help ensure that Cyprus’s 10 percent corporate tax rate — the lowest in the Union and the main draw for the estimated 50,000 Russian-speakers in Cyprus — remains unchanged.

President Demetris Christofias — a fluent Russian speaker and the EU’s only Communist leader — is already a staunch ally of President Vladimir Putin, ties that are only likely to deepen even as Cyprus takes over the rotating presidency of the EU on July 1. One analyst pithily told the Times, “Cyprus needs to decide if it wants to be a member of the European Union or the Soviet Union."

Northern Cyprus is already something of a proxy state, a semi-autonomous region recognized only by Turkey. It should be an interesting dynamic to watch if the south becomes increasingly dominated by Moscow.