Russia, EU duel over crisis hit Greek Cyprus

Russia, EU duel over crisis hit Greek Cyprus

NICOSIA - Agence France-Presse
Russia, EU duel over crisis hit Greek Cyprus

Greek Cypriot demonstrators protest against planned measures to seize 10 percent of savings in national bank accounts as part of an EU bailout deal. REUTERS photo

Russian President Vladimir Putin criticized the European Union’s bailout package that proposed tax on bank deposit in Greek Cyprus as “unfair, unprofessional and dangerous” yesterday as Greek Cyprus’s parliament postponed again a session from yesterday to today for voting on a EU bailout deal that slaps a levy on all Greek Cypriot bank savings, as negotiators scrambled to soften the blow for small deposit holders.

“Putin called a proposed tax on bank deposits in Cyprus that could hit Moscow oligarchs especially hard unfair, unprofessional and dangerous,” Russian news agencies quoted Kremlin spokesman Dmitry Peskov as saying.
In the 10 billion euros bailout accord agreed on March 16 with the EU, the International Monetary Fund and the European Central Bank, Greek Cyprus accepted a levy of 6.75 percent on accounts up to 100,000 euros and 9.9 percent thereafter.

‘Confiscation of other people’s money’

Russian prime minister and former president Dmitry Medvedev for his part said the levy simply looks like the confiscation of other people’s money. “I do not know who the author of this idea is, but this is what it looks like,” he said.

Estimates vary but the Moody’s rating firm estimates that up to $19 billion in private Russian cash is secretly buried in Greek Cyprus. The figure accounts for between a third and half of all Greek Cypriot deposits. Greek Cyprus has consistently ranked as the largest single foreign direct investor in Russia because of the tycoons’ desire to repatriate their cash into money-making enterprises at home.

Russia’s number two bank VTB -a state-owned institution - alone had $13.5 billion resting in Greek Cyprus through a subsidiary and was due to lose a tenth of that amount.

“VTB Group is carefully monitoring the situation,” the bank said in a statement. “We can only assess its repercussions after studying the text of the law.” Criticism resounded through Moscow amid warnings that a possible run on Greek Cypriot banks could reverberate across Europe and set a bad precedent for future rescue packages for struggling states.

Several analysts said the measure was meant to make sure that Brussels did not spend billions propping up occasionally ill-gotten gains of Russia’s super-rich, much of which is believed to have been placed in Greek Cypriot bank accounts.

Moscow is considering extending an existing 2.5 billion euros loan to help bail the island out and said the fact it had not been consulted about the bailout would come into play. Greek Cypriot Finance Minister Michalis Sarris was tentatively scheduled to visit Moscow tomorrow with the brief of lowering that rate and extending the loan’s expiration date until 2020 from 2016.

Moscow was reported to be seeking in exchange details about Russian billionaires who held accounts on the island. Russia was also reportedly interested in buying a majority stake in Greek Cypriot lender Patriot Bank that is in need of rescue.

New formula eyeing

Greek Cyprus Finance Minister Michalis Sarris and Central Bank governor Panicos Demetriades separately told lawmakers they were seeking a fresh formula that would exempt smalltime bank depositors from the unprecedented levy.

They added they were looking to see a tax-free threshold for savings up to 100,000 euros ($129,000), but that under these plan deposits of more than 100,000 euros would be forced to take a bigger hit.

However, “If Cyprus’s president wants to change something in the structure of the levy on bank deposits, that’s in his hands. He must simply make sure that the financing is intact,” ECB executive board Joerg Asmussen said. “They must decide its parameters. It’s not as if the Troika was adamant about this particular structure,” Asmussen argued.

Greek Cyprus is the fifth eurozone country to turn to its partners for aid, but the first where savers are being asked to foot part of the bill.

Russia offers Greek Cyprus bailout for base

Yusuf Kanlı - Analysis

Russian President Vladimir Putin called Greek Cypriot President Nikos Anastasiades on the evening of March 17, and after some angry exchanges, offered to contribute to a rescue plan for cash-strapped Greek Cyprus in exchange for a base on the island, a well-placed Greek Cypriot source has claimed.

Russia has been very much interested in acquiring controling shares of either the Laiki Bank or the Bank of Cyprus for some time. According to the source, Russia has now offered a generous $2 billion for majority shares of the Laiki Bank but signaled also that they might go for the much bigger Bank of Cyprus as well.

A second demand, the source said, was a 50-50 share between Russia and Israel’s Delek in the LNG plant to be constructed in Cyprus. Greek Cypriots have been very much concerned with Israel singlehandedly owning the plant and the Russian partnership demand might be worth seriously considering, the source said.

But a third condition for a “generous” Russian contribution to the Cyprus bailout might be very problematic not only for the island but for the entire EU as well as Turkey and the United States: Russian creation and control of a naval facility to guard the gas terminal.

Israel’s similar demands have been creating issues for some time, but Russia demanding a “naval facility” from Cyprus and expressing that it should have the “unilateral liberty of expanding it as required,” could eventually turn that facility into a full-fledged Russian base.

“Is Russia considering abandoning Syria and moving its base there to Cyprus?” the Greek Cypriot source asked.

President Anastasiades left the House of Representatives and retreated to the modest presidential mansion yesterday to ponder his next move after a vote on the EU bailout plan was delayed. Eurozone officials and representatives of the International Monetary Fund (IMF) and the European Central Bank (ECB) suggested they could consider a revision in the one-off “wealth tax,” nicely worded a “stability levy.” And news that, for the first time ever in the euro crisis, depositors would contribute to the cost of recapitalizing banks, sent shockwaves through Europe and beyond, tumbling stock markets and the euro and sending a very strong message that the ambitious plan probably backfired.

Anastasiades, who was elected president to replace the socialist Demetris Christofias last month, has a very shaky coalition government with 28 seats in the unicameral 56-seat house, where he needs at least 29 votes to legislate the ambitious move. Failing to vote yesterday and agreeing to postpone the issue indefinitely for now – with banks remaining closed – Anastasiades in a way confessed to the international community how fragile his term in office would be. Could a Greek Cypriot president surviving on such fragile political support deliver the long-sought-for compromise settlement?

According to Greek Cypriot sources, officials from countries that use the euro, the IMF and the ECB have already suggested to Aanastasiades that a one-off 9.9 percent “stability levy” on deposits larger than 100,000 euros might provide the required portion of the bailout plan and the levy on deposits smaller than 100,000 euros might be taken down to a much lower rate than the foreseen 6.75 percent. The embattled Anastasiades, however, failed to win the support of the opposition even to take a reduced rate, sources said.