Russia May Join Cyprus Bailout: Report
Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.
Russia is set to join the International Monetary Fund, the European Central Bank and the European Commission in bailing out troubled Cyprus, reported Reuters on Thursday, on condition that Moscow receives the same credit status as euro zone lenders – meaning that it would get repaid right after the IMF.
Russia is set to join the International Monetary Fund, the European Central Bank and the European Commission in bailing out troubled Cyprus, reported Reuters on Thursday, on condition that Moscow receives the same credit status as euro zone lenders – meaning that it would get repaid right after the IMF.
“It is likely to happen,” said one official familiar with the bailout talks to Reuters, citing strong signals from the Kremlin, who already have close business ties with Nicosia.
Before assuming power on February 28 2013, Cyprus’s President Nicos Anastasiades had said that a bailout deal with Russia would be one of the first matters he tackles if he had won the elections.
Officials now say that Anastasiades will travel to Moscow within the coming weeks, in order to persuade his counterpart, Vladimir Putin, to extend an existing Russian loan to Cyprus of 2.5 billion euros by at least five years, while reducing the interest rate from 4.5 percent to 2.5-3.0 percent.
Related: Cyprus: More Worrisome Than Greece?
Related: Cyprus in Talks with Troika over Bailout Package
Meanwhile, the German government is reportedly pushing for Russian investors to partake in a mandatory “bail-in” of Cyprus’s two main banks – the Bank of Cyprus and the Popular Laiki Bank.
The so-called “bail-in” would involve tapping money directly from uninsured deposits in Cyprus’s bank accounts, including that of wealthy Russians, who according to EuroMoney, hold between 7-14 percent of all bank deposits in Cyprus – a figure that does not include deposits held by Russian residents living on the island.
Cyprus, on the other hand, fears that any “bail-in” will spark the rapid withdrawal of funds from the island and undermine its entire business model, making the economic situation even worse.
[quote]“Any haircut to depositors would be destabilizing and dangerous,” declared a source close to the government recently.[/quote]On his part, EU Economic and Monetary Affairs commissioner Olli Rehn last month took care to emphasise that the bailout for Cyprus would not impose similar losses to private creditors as those suffered in Greece.
“The Commission’s intention is to ensure a fair burden-sharing of the cost of restructuring or resolution of Cypriot banks.”
Related: Europe Trapped In Economic War Of Attrition: Mohamed El-Erian
Related: Another Eurozone Crisis In 2014?: Nouriel Roubini
Rehn, at that time, also urged Russia to participate in the bailout.
[quote]”It would certainly be helpful if Russia is able and willing to provide a financial contribution, for instance, in the form of extending loan maturities and reducing interest rates of the existing Cyprus loan,” he said in an interview with Dow Jones. ” It’s only natural that as Russia has quite close economic and financial ties with Cyprus it would be making a contribution.”[/quote]
