When the terms of the first and now abandoned EU bailout deal for crisis-stricken Cyprus were announced, Russian President Vladimir Putin bared his fangs to describe the proposal as “unfair, unprofessional and dangerous.”
Russians have billions of euros deposited in Cyprus banks — some, but by no means all, in illegal tax evasion scams — and the 10 percent mooted levy on all bank deposits risked them losing chunks of their money.
However, when a week later Cyprus and its EU partners agreed a different bailout deal that some analysts believe may prove just as costly for Russians, Putin did not make the slightest criticism and instead suggested Russia could ease the terms of a 2.5 billion euro (US$3.21 billion) loan to Cyprus.
The Kremlin’s sudden change in tack raised a range of questions about the murky world of Russian money in Cyprus and the effect of the Cyprus bailout deal on the Russian economy.
The terms of the second deal were significantly different to the first. Rather than taking 10 percent from all deposits in all Cypriot banks, the levy was substantially increased, but restricted to just two banks, Bank of Cyprus and Laiki. Crucially, this excluded Russian Commercial Bank, which is the Cypriot unit of Russian state-controlled bank VTB, as well as other Russian-owned entities where Russian funds are concentrated.
“A key positive for us was that no Russian bank was part of the solution,” Renaissance Capital chief economist Ivan Tchakarov said.
Standard and Poor’s said that in the end, the terms of the bailout will have a “relatively marginal impact on the consolidated financials of rated Russian banks with a presence in Cyprus.”
Nevertheless, Russian depositors are sure to sustain losses and also be hit by the capital controls imposed by Cyprus.
According to the Vedomosti daily, Putin’s initial fury was as much irritation at not being consulted by the EU about the first deal as concern about its economic consequences.
The precise value of Russian deposits in Cyprus is disputed with estimates ranging from between 5 billion and 25 billion euros. Standard and Poor’s believes that the majority of the non-resident deposit base in Cyprus, which totaled 21 billion euros as of Jan. 31, came from Russia and other ex-Soviet states.
Neil Shearing at Capital Economics said that even under the new bailout, Russian investors could lose 5 billion euros, but he said that even this is “fairly small in the grand scheme of things” and unlikely in itself to have a major impact on the Russian economy.
However, there could be a more significant indirect effect, especially due to the imposition of capital controls, he emphasized in a note to clients.
The Russian government would like it to come home. Russian Deputy Prime Minister Igor Shuvalov said the crisis was proof of solidity of the Russian banking system compared with some of its partners and was a “good signal” to encourage Russians to invest more at home.
However, a substantial reverse flight is hardly likely.
“Russians keep part or all of their wealth abroad for a variety of reasons and while the Cyprus experience is not a good one ... there are plenty of other hubs out there,” Tchakarov said.
Hong Kong and the Netherlands — which has a relaxed tax regime — have been cited as possible destinations for Russian deposits, as well as the Baltic states, in particular Latvia. Latvian media reports have said Riga has already been warned by the European Central Bank that accepting Russian money from Cypriot offshores would harm its chances of joining the euro, but Latvia’s finance minister has said there is just a “very, very minor inflow” of Cyprus money.
When Putin started breathing fire over the first bailout plans, some analysts suggested that the Kremlin had ulterior motives and was eyeing bailing out Cyprus on its own in exchange for strategic interests. These could include a Mediterranean naval base — Russia risks losing its Tartus base in Syria if Syrian President Bashar al-Assad’s regime falls — and a share in Cyprus’ so far unexploited offshore gas reserves.
In the end though, all Nicosia got from Moscow was the possible restructuring of a loan that had looked ripe for restructuring before the current crisis even started.
FRAUD ALLEGED: The leader of an opposition alliance made allegations of electoral irregularities and called for a protest in Tirana as European leaders are to meet Albanian Prime Minister Edi Rama’s Socialist Party scored a large victory in parliamentary elections, securing him his fourth term, official results showed late on Tuesday. The Socialist Party won 52.1 percent of the vote on Sunday compared with 34.2 percent for an alliance of opposition parties led by his main rival Sali Berisha, according to results released by the Albanian Central Election Commission. Diaspora votes have yet to be counted, but according to initial results, Rama was also leading there. According to projections, the Socialist Party could have more lawmakers than in 2021 elections. At the time, it won 74 seats in the
EUROPEAN FUTURE? Albanian Prime Minister Edi Rama says only he could secure EU membership, but challenges remain in dealing with corruption and a brain drain Albanian Prime Minister Edi Rama seeks to win an unprecedented fourth term, pledging to finally take the country into the EU and turn it into a hot tourist destination with some help from the Trump family. The artist-turned-politician has been pitching Albania as a trendy coastal destination, which has helped to drive up tourism arrivals to a record 11 million last year. US President Donald Trump’s son-in-law, Jared Kushner, also joined in the rush, pledging to invest US$1.4 billion to turn a largely deserted island into a luxurious getaway. Rama is expected to win another term after yesterday’s vote. The vote would
CANCER: Jose Mujica earned the moniker ‘world’s poorest president’ for giving away much of his salary and living a simple life on his farm, with his wife and dog Tributes poured in on Tuesday from across Latin America following the death of former Uruguayan president Jose “Pepe” Mujica, an ex-guerrilla fighter revered by the left for his humility and progressive politics. He was 89. Mujica, who spent a dozen years behind bars for revolutionary activity, lost his battle against cancer after announcing in January that the disease had spread and he would stop treatment. “With deep sorrow, we announce the passing of our comrade Pepe Mujica. President, activist, guide and leader. We will miss you greatly, old friend,” Uruguayan President Yamandu Orsi wrote on X. “Pepe, eternal,” a cyclist shouted out minutes later,
Myanmar’s junta chief met Chinese President Xi Jinping (習近平) for the first time since seizing power, state media reported yesterday, the highest-level meeting with a key ally for the internationally sanctioned military leader. Senior General Min Aung Hlaing led a military coup in 2021, overthrowing Myanmar’s brief experiment with democracy and plunging the nation into civil war. In the four years since, his armed forces have battled dozens of ethnic armed groups and rebel militias — some with close links to China — opposed to its rule. The conflict has seen Min Aung Hlaing draw condemnation from rights groups and pursued by the
RSS