Courtesy Reuters

A bank employee counts money in Nicosa, March 2013 (Courtesy Reuters)

On March 19, Michalis Sarris, Cyprus’ finance minister, flew to Moscow for emergency talks aimed at saving the island’s outsized banking sector from collapse. In exchange for a loan extension and new financial aid, the story goes, Sarris offered Russia trade preferences in the energy sector, gas exploration rights, and controlling shares in Cypriot banks. Two days later, he left Moscow empty-handed. Up against a wall, on March 25, Cyprus and the EU agreed on a bailout package that will help pay the country’s bills but will also deduct billions of euros from the savings accounts of wealthy Russians and leave billions more of Russian assets frozen in Cypriot banks. 

To many Western observers, Moscow’s unwillingness to take Sarris’ initial offer appears to be a huge strategic blunder. It seems inexplicable that Cyprus’ most heavily invested economic partner --

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  • YURI M. ZHUKOV is a Fellow at the Weatherhead Center for International Affairs' Program on Global Society and Security and a Graduate Associate at the Institute for Quantitative Social Science at Harvard University.
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