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Medvedev Vexed Over EU

Published: March 25, 2013; 19:57 · (Vindobona)

In case the government will not come to conclusion how to generate the required money (€ 5.8bn), the ECB will cut off the money supply for Cyprus’ ramshackle banks.

Medvedev Vexed Over EU / Picture: © Wikipedia / Materialscientist

The measure will cause high losses for uninsured foreign investors in Cyprian banks. The majority of them are from Russia. Medvedev considers the bail-out plan, which includes a mandatory levy for assets above the amount of € 100,000 for clients of Cyprus’ two biggest banks, as an act of theft. "The stealing of what has already been stolen continues," Medvedev was cited by news agencies during a meeting of government officials. The Prime Minister stressed that the Russian government had to watch closely what would happen now. According to the latest estimates by Moody’s around € 24bn assets at nominal value are deposited in Cyprian banks by Russian citizens.

Russia has again and again expressed its consternation at Europe's conduct of the debt crisis in Cyprus, while until now rejecting the appeals of President Nikos Anastasiades to grant significant financial support of its own. Furthermore, the Russian government has not been able to manage and move off-shore businesses inside the country.

Nevertheless, Russia now seems to be willing finally offer Cyprus some backing. President Vladimir Putin has ordered the government to support the Eurogroup’s efforts, Dimitri Peskow, spokesman of Putin, told news agency Interfax on Monday. Experts are supposed to examine if a restructuring of credits was possible. Cyprus is hopening for an easening of the conditions for the € 2.5bn loan which was granted in 2011.

Russia has a significant number of banks in Cyprus via a subsidiary of state-controlled VTB, Russian Commercial Bank. "It is in our interest for the banks to work well, for them not to be encumbered with any (bad) debts - including VTB's own subsidiary," Anton Siluanov, Russian’s Finance Minister, explained Reuters in an interview. "They should keep working and not be the source of any burden."

According to Christos Stylianides, spokesman of the Cyprian government, a levy of around 30 % of all assets above the amount of € 100,000 will be charged. The mandatory toll was agreed upon during negotiations with international creditors in Brussels in order to avoid Cyprus’ national bankruptcy. In agreement with the EU, the International Monetary Fund (IMF) and the European Central Bank (ECB), the second biggest bank of the country, Popular Bank (Laiki Bank) will be split into a bad bank and a regular bank. So-called “bad loans” will be taken over by the bad bank. Assets above € 100,000 will be frozen for the time being. However, the affected creditors are supposed to be compensated with a stake of the bank for the 30 % abatement of their assets, President of the government’s finance committee, Nikolas Papadopoulos, announced. Investors in Popular Bank (Laiki Bank) might even have to face higher losses. According to Austrian Finance Minister, Maria Fekter, a massive haircut for stakeholders and creditors will occur in order to generate the required equity ratio of 9 %. The restructuring measures will be “painful”, according to her.