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Cyprus has not agreed with Russia on the aid to the country yet

March 21, 2013, 12:00 UTC+3
In exchange for the financial aid Nicosia proposed to Russia a share in local banks and the access to the recently found gas deposits on the Cypriot continental shelf
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On Wednesday, Cypriot Finance Minister Michael Sarris had negotiations with his Russian counterpart Anton Siluanov and First Deputy Prime Minister Igor Shuvalov. The negotiators discussed Russia’s possible aid to Cyprus. In exchange for the financial aid Nicosia proposed to Russia a share in local banks and the access to the recently found gas deposits on the Cypriot continental shelf. The negotiations have not brought any results yet. The leadership of the European Commission will join the negotiations on Thursday.

On Wednesday, Cypriot Finance Minister Michael Sarris began negotiations in Moscow to receive the aid for the salvation of the country’s economy, the Vedomosti daily reported. The island needs about 17 billion euros, 10  billion euros of which the trio consisting of the European Union, the European Central Bank and the International Monetary Fund are ready to allocate, if Cyprus finds 5.8 billion euros on its own. The authorities of the island intended to resolve the second task, imposing the emergency tax on the bank deposits at the local banks, but on Tuesday the Cypriot parliament turned down this bill (the tax of 6.759.9% on the bank accounts of over 20,000 euros). After this Cyprus just has to hope for a softer position of the foresaid trio over the imposition of the tax or the support from Russia.

Sarris held two meetings, at first with Russian Finance Minister Anton Siluanov and then with First Deputy Prime Minister Igor Shuvalov. It was reported officially that he arrived to discuss the restructuring (for a period of five years) of a credit of 2.5 billion euros, which Russia allocated to Cyprus for a period of 4.5 years in 2011. But Sarris also brought to Russia the initiatives to buy Cypriot assets not for the credit funds, but for hard money, Russian and European state officials stated. In their view, energy projects, including those on the Cypriot continental shelf, and the banks are among possible variants.

After the negotiations Sarris stated that the negotiating parties have not agreed on anything yet. He pledged to continue the negotiations on Thursday and not to leave Russia unless he reaches some agreement.

Cyprus did not offer anything that would be vitally interesting for Russia, the Vedomosti daily cited a federal official acquainted with the results of the negotiations. The negotiations passed, but yielded no results, another federal official said. In his words, Cyprus has brought many initiatives, including the offshore gas deposits, Russia is analysing them and is not convinced of their expediency yet.

On Thursday, the EU delegation will visit Moscow. During a visit the negotiations will be held at the level of Prime Minister Dmitry Medvedev and President of the European Commission Jose Manuel Barroso and a meeting between the European commissioners and Russian ministers. On Wednesday evening, Medvedev fuelled up an intrigue to the Thursday negotiations in an interview with the European media. He stated that Russia may denounce the treaty to avoid the double taxation with Cyprus. No double taxation is of interest for Russian business in Cyprus, without this treaty any withdrawal of assets on the island will be taxed in Russia, Paragon Advice Group partner Alexander Zakharov said.

It was already obvious on Wednesday morning that the negotiations failed, the Kommersant daily reported. After a brief round of negotiations in the Russian Finance Ministry with Anton Siluanov the Cypriot delegation had an unscheduled meeting with First Deputy Prime Minister Igor Shuvalov. According to the sources acquainted with the negotiations the newspaper reported that the main problem was that Cyprus did not have concrete well-developed proposals to Russia de facto. “They had nothing that could have been discussed in detail,” the source claimed. The second source affirmed, adding that Sarris allegedly even lacked a firm position on the sum, which is urgently needed to Cyprus in next few days.

Meanwhile, the scale of possible losses for Russia became more definite, the newspaper noted. The IIF statistical reports were made public on the condition of the Cypriot banking system, which is based on the statistical data of the IMF and the European Central Bank. The volume of the bank deposits, which is controlled by the non-residents in the banks of Cyprus, is estimated at 37.6 billion euros, including 19 billion euros that may be attributed as the assets primarily of Russian, Ukrainian and Lebanese origins.

The Russian officials do not see the ways out of the Cypriot crisis and do not realize all the consequences of this crisis for Russian economy, the Nezavisimaya Gazeta daily reported. Head of the Federal Service for Financial Markets Dmitry Pankin acknowledged this fact indirectly on Wednesday. The EU initiatives to impose a confiscation banking tax in Cyprus undermine the trust to the world banking system, he noted. The Cypriot precedence may result in the outflow of the depositors from Italy and Spain. “The whole European community will be affected strongly,” Pankin told reporters on Wednesday. He called the tax recipes of the European Union for Cyprus idiotic. The most important thing, as Pankin acknowledged indirectly, is possible aftermaths of the Cypriot crisis for Russian economy. On Wednesday, Pankin failed to describe concrete aftermaths and referred to the supposition that next few days will show everything, Interfax reported.

Cyprus has some chances to gain support from the Russian government, head of the department of investment operations of the Lanta-Bank Oleg Poddymnikov believes. But only a delay in the payment of a credit of 2.5 billion euros, which Russia allocated before, will not be enough, Cyprus needs no less than 17 billion euros. “However, according to the IMF estimates, if Cyprus receives this sum in the form of credits, the debt burden on the country will become unbearable. Probably Cyprus will manage to come to terms in Moscow on additional capitalization of some banks. Probably this can be done not directly from the government, but through the companies or the banks with the state stake. Meanwhile, the EU can block this way of talks, though Merkel stated that Cyprus should consult only with international creditors without third parties. Cyprus will also hardly manage to restructure the debt on the Greek scenario. The British law regulates the bulk of the debt. This means that a court verdict is prioritized. So, the current situation in Cyprus is very dangerous,” Poddymnikov believes.

He recalled that, in the Moody’s estimates, the deposits of Russian private and corporative clients in Cyprus make about 30 billion euros. In addition to this fact many funds, which trade Russian assets at the London and Moscow stock exchanges, are registered in Cyprus. “In case of bankruptcy the banking transactions will be suspended. This will result in the losses of the funds and will affect negatively the Russian stock market. Many direct investments and credits from Russian companies also pass through Cyprus. The suspension of these transactions will have a negative impact on Russian economy,” the expert said in conclusion.


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