Moscow’s willingness to ease loan terms to Cyprus in doubt

Moscow has condemned EU plans to tax savings held in Cyprus as part of its bailout amid expectations that major Russian tycoons and businesses could suffer large losses under the scheme.

President Vladimir Putin and prime minister Dmitry Medvedev lambasted the EU plan which would affect billions of euro held by Russians in Cyprus.

Moscow’s finance minister warned that it might no longer be willing to ease the terms of a €2.5 billion loan to Nicosia.

Russia’s Micex stock index suffered its biggest drop in four months – with banks hardest hit – in response to news of the €10 billion bailout, which would see all deposits in Cypriot banks slapped with a tax of up to 9.9 per cent.

“While assessing the proposed additional levy on bank accounts in Cyprus, Putin said that such a decision, should it be made, would be unfair, unprofessional and dangerous,” said Kremlin spokesman Dmitry Peskov.

Mr Putin has recently made strong public calls for Russian officials and businessmen to stop stashing money offshore and buying overseas property and to concentrate their wealth at home.

However the scale of the losses potentially incurred in Cyprus by powerful Russian companies and oligarchs, many of whom are close to the Kremlin, seemed to infuriate Mr Putin and other officials.

“It is a very strange and controversial decision by individual EU member states ... To put it bluntly, it looks just like the confiscation of other people’s money,” said Mr Medvedev.

“We need to draw conclusions from this, and of course we have our relations with Cyprus ... We will continue consultations, but we will have to make adjustments to our position, even while understanding that in general it is desirable that money be kept in Russian banks.”

Foreigners hold some 40 per cent of the €68 billion sitting in Cypriot banks, and most of that belongs to Russians, who have long enjoyed the island’s low tax rates, light regulation and double taxation treaty with their homeland.

Tens of billions of euro that leave Russia every year in capital flight have helped make Cyprus’s banking sector several times larger than its gross domestic product.

EU nations, led by Germany, have asked whether Cyprus is acting as a convenient money-laundering location for dirty Russian cash, and they were unwilling to bail out Russians in the process of saving Cyprus from financial meltdown.

The EU expected Moscow to help prop up Cyprus by lowering the interest rate and extending the repayment period of a €2.5 billion loan to Nicosia, but Russian finance minister Anton Siluanov said that was now in doubt.

“We had an agreement with Eurogroup colleagues to take co-ordinated action,” he said.

“It turns out that the Eurogroup has moved to tax deposits without discussion with Russia, so we will look again at the question of whether we take part in restructuring the existing loan.”