As the financial crisis deepens in Cyprus, attention is focusing on Russia’s role in preventing the Mediterranean island nation from going bankrupt and exiting the eurozone. RFE/RL’s Claire Bigg spoke to Natalya Orlova, chief economist at Alfa Bank.
RFE/RL: Michael Sarris, the Cypriot finance minister, was in Moscow this week to discuss the restructuring of a previous Russian loan as part of an international package of support for Cyprus. Sarris was also expected to appeal for additional Russian aid. Does Russia have enough liquidity to help bail out Cyprus? How realistic is Russian financial aid at this stage?
Natalya Orlova: Russia has huge government reserves relative to Cyprus. We have some $170 billion in our reserve fund. So finding the money is not the problem. What raises concerns is the format in which these discussions are taking place. Negotiations on this sum, this $5 billion-$6 billion credit to Cyprus, in a way, [would] offset the tax on bank deposits that Cyprus was planning to introduce and that would have generated roughly the same sum.
This deal was part of the European lenders’ proposal because it is meant to prevent their financial help to Cyprus from being used to compensate for the significant capital outflow, including the outflow of Russian funds, from the country. It is far from obvious that Europe will agree to offer Cyprus a joint aid package with Russia. And for Russia, there are doubts about whether it will be able to control that these funds are used for the benefit of Russian depositors in Cyprus.
RFE/RL: Should Cyprus accept a fresh loan from Moscow, it will probably need to sell assets. So far, there has been talk of Russia purchasing stakes in Cypriot banks and of a possible deal that would grant Gazprom access to the island’s gas reserves. Are there any other Cypriot assets that could potentially interest Moscow?
Alfa Bank chief economist Natalya Orlova says the European Central Bank is in an uncomfortable position.Alfa Bank chief economist Natalya Orlova says the European Central Bank is in an uncomfortable position.
Orlova: I’m afraid Cyprus does not have that many assets to offer. Those you mentioned are indeed being discussed. But again, the question of assets is not the most important here. What is vital is that European lenders agree to let Russia participate in this financial-aid package. There needs to be a joint position, because so far it looks more like Cyprus is holding separate talks with the eurozone and Moscow. And Cyprus may not be able to obtain funds from both sides.
RFE/RL: Cyprus’s negotiations with Moscow clearly rile the European Union — in particular German Chancellor Angela Merkel, who has reportedly chided President Nicos Anastasiades for turning to Russia for help.
Orlova: After all, Cyprus is part of the eurozone. In the event of a liquidity crisis in the Cypriot banking system — and in principle it has already happened, it will simply become clear when the banks there reopen — this crisis will have to be solved by the European Central Bank. This puts the eurozone in an uncomfortable position, because the European Central Bank will have to provide significant financial support. So it would make more sense for Cyprus to agree on all the conditions directly with the eurozone.
RFE/RL: Out of a total $90 billion deposited in Cypriot banks, Russian funds account for between $20 billion and $30 billion, depending on estimates. Who are the main Russian depositors in Cyprus: banks, government-linked structures, individuals?
This is not government money. It belongs to private depositors, Russian citizens who have accounts there, or to small Russian companies. The bulk of these funds came to Cyprus in the 1990s and 2000s, mostly from small firms that found it expensive to open holdings or accounts in other countries and chose Cyprus.
RFE/RL: The proposed tax on bank savings has sparked furious reactions in Russia, with President Vladimir Putin lambasting it as “unfair, unprofessional, and dangerous.” Britain, whose nationals also have substantial funds placed in Cyprus, has shown a lot more restraint on the matter. How do you explain Russia’s anger?
Orlova: I don’t think Britain is feeling very comfortable either. But as far as I understand, Britain has decided to reimburse possible losses to depositors. With Russia, we are talking about much larger deposits.
Taking into account its important presence on Cyprus, Russia obviously expected to be consulted in advance. Russia, just like the entire international community, was presented with the fait accompli that an agreement had been reached to introduce a tax on deposits. I think this explains Russia’s reaction.