No quick deal for Cyprus in push for Russian help

Cypriot minister fails to secure easing of terms on €2.5bn loan from Moscow

International Monetary Fund mission chief Delia Velculescu and European Commission representative Maarten Verwey arrive for a meeting with Cypriot president Nicos Anastasiades at the presidential palace in Nicosia yesterday. Photograph: Reuters

International Monetary Fund mission chief Delia Velculescu and European Commission representative Maarten Verwey arrive for a meeting with Cypriot president Nicos Anastasiades at the presidential palace in Nicosia yesterday. Photograph: Reuters

Thu, Mar 21, 2013, 06:00


Cyprus drew a blank from its first day of intensive talks with Russia on possible financial aid that could help the island avoid an EU-imposed bank levy that has infuriated Moscow.

Cypriot finance minister Michael Sarris met Russian officials to discuss how Moscow could help prop up a bloated banking system stuffed with tens of billions of euro in Russian deposits, which provides financial services for many major Russian firms seeking low taxes and light regulation.

These companies and their influential owners, as well as many other wealthy Russian individuals, face major losses if Cyprus opts for a €10 billion EU bailout that would involve a one-off levy of almost 10 per cent on bank accounts holding more than €100,000.

Russian president Vladimir Putin called the EU plan “unfair, unprofessional and dangerous”, and finance minister Anton Siluanov threatened to scrap Moscow’s offer to ease the terms of an existing loan to Cyprus. Prime minister Dmitry Medvedev said yesterday that the EU and Cyprus had handled the island’s debt crisis like “bulls in a china shop”.

“I think every possible mistake that could have been made in this situation has already been made,” he added.


Empty-handed
Mr Sarris arrived in Moscow on Tuesday evening, just as the Cypriot parliament was rejecting the terms of the EU bailout, and he met Mr Siluanov first thing yesterday. He hoped to persuade Mr Siluanov to lower the interest rate and extend the repayment of a 2011 Russian loan of €2.5 billion to Cyprus. According to Russian finance ministry officials, Mr Sarris also sought an additional loan of €5 billion. He left the meeting upbeat but empty-handed. “We had a very good first meeting, a very constructive and very honest discussion. We underscored how difficult the situation is and we will now continue our discussions to find a solution by which we hope we will be getting some support from Russia,” Mr Sarris said. He then moved on to meetings with first deputy prime minister Igor Shuvalov, who is something of a point man on economic matters for Mr Putin.

Government sources said Mr Sarris had two meetings with Mr Shuvalov, but that they did not yield any results. Negotiations would continue today, they said. Much speculation surrounds what Russia may seek and what Cyprus is willing to offer in any deal that would help Nicosia scrape together enough money to avoid the EU’s planned bank levy.

Persistent Russian media reports suggest Kremlin-controlled energy giant Gazprom could propose a major cash injection for Cyprus in return for rights to explore its offshore gas fields. Gazprom has said no such deal is in the offing, but it would strengthen Russia’s position at a time when shale gas exploitation threatens to loosen its stranglehold on Eu rope’s energy market.

Russian interests
Other reports claim Russian banks could buy ailing Cypriot lenders, and both protect Russian financial interests on the island and establish a hub for Russian banking in the euro zone. There are also suggestions Russia may covet Cyprus as a place to establish a naval base in the Mediterranean, at a time when its only facility in the region – at Tartus in Syria – is under threat from the conflict there and might be closed if Moscow ally Bashar al-Assad is ousted.

Mr Sarris would not comment on what else was on the negotiating table, but he acknowledged that talks went further than ways to ease the terms of the €2.5 billion credit.