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The scandal in Cyprus is becoming more ‘Russian’

March 20, 2013, 11:57 UTC+3
From about 68 billion euros on the bank deposits in the Cypriot banking system 25-30 billion euros “originated from Russia”
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The Cypriot parliament rejected the law over the tax on the bank deposits. The parliament will hold new debates over the law on Thursday. Meanwhile, the experts are convinced that Russian structures will be mostly affected from a current dramatic situation in Cyprus.

Despite the fact that from about 68 billion euros on the bank deposits in the Cypriot banking system 25-30 billion euros “originated from Russia”, the scandal in Cyprus has already become almost fully ‘Russian’ over the past day, the Kommersant daily affirmed. In view of a very moderate response to the current Cypriot situation in Britain, ‘the share’ of which on Cypriot deposits is also quite large, the Russian response to the current situation is the toughest and definite one. The statements by Russian President Vladimir Putin and Prime Minister Dmitry Medvedev taken in the European Union as very harsh statements over an unacceptable supposed way to settle ‘the Cypriot crisis’ sound very softly in comparison with the statements in the Russian business community over the Tuesday events.

Meanwhile, the newspaper noted it is unclear who will be affected in concrete or all together in Cyprus from ‘the tax’ or a possible freezing of the assets. Most tax consultants stated that Cyprus is primarily a transit centre, the companies usually do not keep their monetary funds there and just carry out financial transactions through Cyprus within the framework of the holdings.

The EU states already face some problems with the financial transactions of Russian contract partners involved in the business activities in Cyprus, but they are very moderate. Meanwhile, the prospects for a possible fall of the prices on real estate in Cyprus a probable ‘second round’ of collapse are being discussed quite more seriously in Cyprus and by the companies involved in the business activities in Cyprus. Another matter for debates is the sources of a considerable part of ‘Russian’ deposits in the Cypriot banking system. “The companies do not keep the monetary funds in Cyprus,” a source from a major company, which is consulting the corporative sector, told the Kommersant daily categorically. “This is at least mostly ‘grey’ money, and therefore an opportunity to protect this money in the courts in case of Cyprus’ possible freezing of the monetary funds is a big question. The sources of the monetary funds will have to be reported,” the source said.

The Nezavisimaya Gazeta daily reported that several Russian bankers and businesspeople are quite alarmed. They are convinced that a blow to the Russian banking system is already dealt regardless a final decision on the tax. The Russian banking system turned out to be on tenterhooks. So, on Monday evening former economy minister and President of the bank Russian Financial Corporation Andrei Nechayev stated that the communication lines with the Cypriot banks are broken in the literal sense of the word, the managers of the Cypriot banks have just switched off their phones. “No one can receive an answer to the vital question, whether this tax will affect only the bank deposits or the current accounts as well. As this factor will change cardinally the situation for Russian companies. They hardly had the bank deposits there. This is sooner just some current assets, which they are accumulating, deducting from the exports, particularly for further investments in Russia,” Nechayev said with regret.

The Russian banks and companies dragged in Cyprus cannot effect payments unless the Cypriot government settles a row over the tax and this fact threatens an agreement with other participants on the market, high risks for lawsuits and fines against Russian companies, which cannot make timely payments over the Cypriot problems, have emerged, the newspaper noted. But even the Cypriot refusal from the confiscation tax will not result in frozen banking transactions. As the banks in trouble may declare a default at any moment.

The Central Bank of Russia also had to recognize additional risks for Russian companies and banks on Tuesday. A possible imposition of the tax on the bank deposits in Cyprus for the salvation of the country’s economy from a default will not influence the stability of the Russian banking system, but may affect separate players on the market, First Deputy Chairman of the Central Bank of Russia Alexei Simanovsky stated. The Russian bank VTB is frequently named as a possible victim of the Cypriot crisis.

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