Russia offers to bail out Cyprus … for a price

posted at 10:41 am on March 19, 2013 by Ed Morrissey

The tiny island of Cyprus has become a flashpoint in the years-long struggle to resolve the Western debt crisis, but it may be more of a pawn in a power struggle, too.  Cypriots have reacted in outrage over the terms of the bailout offered by the EU, which would confiscate a significant percentage of bank deposits.  That has other EU-bailout targets wondering if their own deposits are safe.

However, Russia appeared with a last-minute white-knight bailout offer that would leave deposits alone.  It would, however, strip Cyprus of its natural-gas assets (via Instapundit):

Russian energy giant Gazprom has offered the Republic of Cyprus a plan in which the company will undertake the restructuring of the country’s banks in exchange for exploration rights for natural gas in Cyprus’’ exclusive economic zone, local media reported.

Representatives of the Russian company submitted the proposal to the office of Cypriot President Nicos Anastasiades on Sunday evening, Sigma TV reported.

The proposal states that Gazprom will fund the restructuring of the country’s crippled financial institutions in exchange for substantial control over the country’s gas resources while Cyprus won’t need to take the harsh bailout package offered by the EU.

Why would Gazprom — tied very closely to the Putin regime in Moscow — try to intervene to save Cypriot depositors?  Certainly, they see value in Cyprus’ natural-gas reserves, but they could probably squeeze Cyprus for a decent price without underwriting their bankruptcy and spend a lot less money.  As it turns out, though, a good number of those Cypriot depositors turn out to be … Russian:

Pictures of long lines of angry Cypriots trying to pull money out of empty ATMs made the rounds on  Monday, as the world woke up to a decision by the Troika and President Anastasiades to impose haircuts on the nation’s depositors.  While Cypriot savers and opposition politicians protested the one-time levy, the unprecedented move appears focused on Cyprus’ large foreign depositor base, particularly Russian citizens and banks, which account for approximately 22% of total deposits, which are nearly four times larger than the island-nation’s yearly GDP. …

The Troika is singling Cyprus out, forcing it to impose a substantial haircut on creditors that will clearly hit the savings of the nation’s citizens.  But the Cypriot financial system is very particular, with nearly €70 billion ($91 billion) in deposits, or about 380% of GDP.  About 37% of deposits are owned by foreigners, according to Barclays, and nearly 60% of that belongs to Russians, numbers compiled byDanske Bank (and published by FT Alphaville) indicate.

Cyprus’ lax anti-money laundering laws and favorable tax treatment has made it a safe haven for rich Russians looking to stash their money cheaply.  In other words, the Troika is punishing Cypriot savers with the one-time tax, but they are also telling the Russians to pay up.

Thus does Gazprom’s intervention make sense.  The Russians want the Cypriot banking system to remain in status quo, and to protect the large amount of deposits from Russian banks.  It’s a protectionist move intended to keep the EU from grabbing assets belonging to Russia’s financial system.  It also makes sense of what looked like a very bad decision on the part of the EU that would normally destabilize a banking system.  Although the decision is still a bad one — and sets a very dangerous precedent that may inspire bank runs in other teetering EU countries — the politics of the decision make a little more sense.

So far, Cyprus says they won’t even consider the Gazprom initiative while they’re negotiating with the EU.  We can bet that the Russian offer is coming up in those negotiations, though.


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This is a brave new world being created around us, thank Gaia we have a strong preznit with a spine of steel who can confront it all.

Bishop on March 19, 2013 at 10:44 AM

Not to mention, Cyprus is quite an advantageous position, geographically. It’s right in the Mediterranean and very close to the Middle East. Russia would love to own that island. Simply to be able to have a blocking move on anything the US does in the ME. As well as giving Russia a long standing dream: a warm water port for the Russian navy.

rbj on March 19, 2013 at 10:46 AM

to impose haircuts on the nation’s depositors

LOL. You’ve got to love the euphemisms of the ruling classes, these days. “Haircuts” … okay.

At least, they wrote “impose”. With the Greek default it was determined that the theft from the creditors was all “voluntary” since no one opened fire on the government. Lucky for the CDS sellers, there … Yep.

ThePrimordialOrderedPair on March 19, 2013 at 10:47 AM

Its called – protecting their own investments….
The Ruskie mobs have mucho dinero in these Cyprus banks and Vlad…

yes, senor Pootin has a quid pro on his hands.

FlaMurph on March 19, 2013 at 10:49 AM

to impose haircuts on the nation’s depositors

They really should just say that “the nation’s depositors will be treated to a temporary negative interest rate”. That sounds much better.

ThePrimordialOrderedPair on March 19, 2013 at 10:50 AM

The Russians want the Cypriot banking system to remain in status quo, and to protect the large amount of deposits from Russian banks. It’s a protectionist move intended to keep the EU from grabbing assets belonging to Russia’s financial system.

Yuppers.

LOL. You’ve got to love the euphemisms of the ruling classes, these days. “Haircuts” … okay.

ThePrimordialOrderedPair on March 19, 2013 at 10:47 AM

Well, theft is such an ugly word.

Fallon on March 19, 2013 at 10:51 AM

Nothing would make the banking system collapse faster than all the savers pulling out. It seems to me that the people have money and the government and banks are poorly run and are bankrupt. Fix those problems and you don’t need to steal from the savers. But of course the government is never the problem so keep on spending.

Corsair on March 19, 2013 at 10:52 AM

As well as giving Russia a long standing dream: a warm water port for the Russian navy.

Russia/Soviet Union has had the opportunity for warm water ports in the past. The issue is their ability to project their naval forces AND maintain them at the same time. This is where they have always failed.

Aplombed on March 19, 2013 at 10:53 AM

Nothing would make the banking system collapse faster than all the savers pulling out.

Corsair on March 19, 2013 at 10:52 AM

No banking system can ever be safe from a run. I don’t know about Cyprus, but with interest rates near zero in most of the Western world there is absolutely no reason for anyone to have money in deposit at the banks. The ultra-low interest rates make the banks particularly susceptible to a major bank run, which these geniuses in the various joke governments around the West have not yet figured out. When interest rates are high, people are somewhat forced to have their cash on deposit or in short-term paper, but with T-bills yielding less than 0.25% and banks paying nothing for deposits, the only money that should be in a bank should be in cash or hard assets in a safety deposit box.

Ultra-low interest rates are to a banking system what a bone dry forest is in the summertime. Just waiting to go up in flames at the slightest spark.

ThePrimordialOrderedPair on March 19, 2013 at 10:56 AM

Having full access to all Russian account details would be a bonus, too.

OldEnglish on March 19, 2013 at 10:58 AM

This is a brave new world being created around us, thank Gaia we have a strong preznit with a spine of steel who can confront it all.

Bishop on March 19, 2013 at 10:44 AM

Obama would gladly give away our natural gas exploration sites in exchange for more debt financing from other countries.

Doughboy on March 19, 2013 at 10:59 AM

Not to mention, Cyprus is quite an advantageous position, geographically. It’s right in the Mediterranean and very close to the Middle East. Russia would love to own that island. Simply to be able to have a blocking move on anything the US does in the ME. As well as giving Russia a long standing dream: a warm water port for the Russian navy.

rbj on March 19, 2013 at 10:46 AM

Russia has no ability to move ships in and out Mediterranean region without being 100% controlled by NATO. Putin would love to own Cyprus, but for the entirely different reason – as a resort property for his pet oligarchs. If money is going to be wasted, it’s better to have it wasted on one’s controlled territory. I last talked to Cypriots on my honeymoon 12 years ago, and locals didn’t mind Russian influence in the least; they see it as fat money source in exchange for what they have aplenty (sun, beaches, tourist attractions, and cheap hospitality labor).

Archivarix on March 19, 2013 at 11:00 AM

Cyprus’ lax anti-money laundering laws and favorable tax treatment has made it a safe haven for rich Russians looking to stash their money cheaply. In other words, the Troika is punishing Cypriot savers with the one-time tax, but they are also telling the Russians to pay up.

But, the Russians would only be paying a part of the bailout. The remainder would be coming from taxpayers in countries like Estonia. How perverse is that?

Resist We Much on March 19, 2013 at 11:06 AM

What would Ronald Reagan do? WWRRD

redguy on March 19, 2013 at 11:12 AM

Obama’s probably on the phone asking if the Russians would like to finance our debt in return for our evil natural gas resources, too.

Midas on March 19, 2013 at 11:15 AM

My guess is Gazprom would leave the Cypriot gas undeveloped. So citizens there could not even expect a jobs boost from the Russian position.

I hate to sound like a left winger, but in the long run it is going to be so much cheaper for US taxpayers to just write off some of the debt for stupid little nations such as Cypress. You know the US taxpayer is going to end up paying in the long run.

It makes more sense than sending food stamp $$$ to Mexico.

doufree on March 19, 2013 at 11:17 AM

What would Ronald Reagan do? WWRRD

redguy on March 19, 2013 at 11:12 AM

He would have spoken up for property rights yesterday and not had his Press Secretary defer inquiries to Treasury.

Resist We Much on March 19, 2013 at 11:19 AM

Not to mention, Cyprus is quite an advantageous position, geographically. It’s right in the Mediterranean and very close to the Middle East. Russia would love to own that island. Simply to be able to have a blocking move on anything the US does in the ME. As well as giving Russia a long standing dream: a warm water port for the Russian navy.

rbj on March 19, 2013 at 10:46 AM

The Russians have a warm port for their navy in the Mediterranean and it is the Port of Tartus in Syria. This is one reason why Russia is so supportive of the Assad regime… However if Russia can find an alternative to the port in Tartus by having a port in Cyprus then they will be very happy with it in particular that they know that eventaully Assad regime is going to fall sooner rather than later…

mnjg on March 19, 2013 at 11:20 AM

So when China threatens to pull the plug on our debt, Obama can give them the oil/gas rights on federally controlled land.

petefrt on March 19, 2013 at 11:23 AM

I think it has to more with establishing leverage on the weak, southern half of the EU than about bailing out mobsters. It won’t be an iron curtain this time, but a high-financial one. Meanwhile the vain imbecile Obama is busy planning his throne room.

dhimwit on March 19, 2013 at 11:27 AM

The Russians have a warm port for their navy in the Mediterranean and it is the Port of Tartus in Syria.

That’s basically a glorified port of call. The Russians do not have any permanent warm water ports.

Aplombed on March 19, 2013 at 11:42 AM

Beware of Soviets Russians bearing promises…

workingclass artist on March 19, 2013 at 11:43 AM

So when China threatens to pull the plug on our debt, Obama can give them the oil/gas rights on federally controlled land.

petefrt on March 19, 2013 at 11:23 AM

The difference is that we have the mightiest military in the world and we can tell the debtors to go and pound sand… This is the ultimate secret that no one wants to say it in public… Remember Might is Right…

mnjg on March 19, 2013 at 11:45 AM

uhoh…Domino…

The National Government are pushing a Cyprus-style solution to bank failure in New Zealand which will see small depositors lose some of their savings to fund big bank bailouts, the Green Party said today.

http://www.scoop.co.nz/stories/PA1303/S00306/national-planning-cyprus-style-solution-for-new-zealand.htm

workingclass artist on March 19, 2013 at 11:48 AM

The difference is that we have the mightiest military in the world and we can tell the debtors to go and pound sand… This is the ultimate secret that no one wants to say it in public… Remember Might is Right…

mnjg on March 19, 2013 at 11:45 AM

You sure about that? The mightiest military in the world…one or two more sequestrations and you might want to revisit that statement :)…

jimver on March 19, 2013 at 11:52 AM

Not to mention, Cyprus is quite an advantageous position, geographically. It’s right in the Mediterranean and very close to the Middle East. Russia would love to own that island. Simply to be able to have a blocking move on anything the US does in the ME. As well as giving Russia a long standing dream: a warm water port for the Russian navy.

rbj on March 19, 2013 at 10:46 AM

Yeah, but the Brits are there to stay too, they are not giving up their sovereign territory in Cyprus (the Akrotiri and Dhekelia bases) and as long as the Brits are there the US will always have access to their bases. As we do now, even if more or less unofficially so…

jimver on March 19, 2013 at 11:59 AM

But, the Russians would only be paying a part of the bailout. The remainder would be coming from taxpayers in countries like Estonia. How perverse is that?

Resist We Much on March 19, 2013 at 11:06 AM

…and countries like the US too. Te IMF is involved in the Cyprus bailout too

jimver on March 19, 2013 at 12:02 PM

There should be the start of selling off parts of countries to other countries to pay for their debt.
Didn’t Napoleon sell off the Louisiana Purchase to the Americans to pay off his war debt?
And the Russians sold Alaska to the US in 1867 for $7 million.
Why not do it today?

albill on March 19, 2013 at 12:07 PM

There should be the start of selling off parts of countries to other countries to pay for their debt.
Didn’t Napoleon sell off the Louisiana Purchase to the Americans to pay off his war debt?
And the Russians sold Alaska to the US in 1867 for $7 million.
Why not do it today?

albill on March 19, 2013 at 12:07 PM

:) it’s actually happening :) Greece is considering selling some of their small islands to German investors…

jimver on March 19, 2013 at 12:11 PM

No banking system can ever be safe from a run.
ThePrimordialOrderedPair on March 19, 2013 at 10:56 AM

But in an effort to “save” the banks they are going to destroy the whole system. I find it amazing that governments can be relied on to do the wrong thing 95% of the time in a crisis – and it’s always a crisis.

Corsair on March 19, 2013 at 12:19 PM

Cyprus could auction, or borrow, against its promising gas fields rather than turn them over to Gazprom. The question is whether the leadership of Cyprus has the skill, ability, and time to negotiate.

A.S.R. on March 19, 2013 at 12:25 PM

Debts must be paid either with money, resources, land, blood, or (slave) labor.

Cypris is hosed, teh USA is screwed.

tom daschle concerned on March 19, 2013 at 12:55 PM

Cyprus could auction, or borrow, against its promising gas fields rather than turn them over to Gazprom. The question is whether the leadership of Cyprus has the skill, ability, and time to negotiate.

A.S.R. on March 19, 2013 at 12:25 PM

The leadership of Cyprus is corrupt and most likely in the Russian Mafia’s pocket. The ‘we’re not even considering the Gazprom offer’ is mostly posturing.

jimver on March 19, 2013 at 1:00 PM

Wait until the U.S.A. gets un-wound.

Oh, the concessions that will be called for will make your heads spin.

…and THE TEATERS are going to be pisssssssssssssssssssed.

PappyD61 on March 19, 2013 at 1:22 PM

Archivarix on March 19, 2013 at 11:00 AM

Yeah, but the Brits are there to stay too, they are not giving up their sovereign territory in Cyprus (the Akrotiri and Dhekelia bases) and as long as the Brits are there the US will always have access to their bases. As we do now, even if more or less unofficially so…

jimver on March 19, 2013 at 11:59 AM

We are delaying an aircraft carrier group from going to the Med for 6 months due to sequestration, or more accurately blamed on sequestration. Plus we are down to 10 aircraft carriers when we’ve had a history of 12 of them. As for other NATO members, France couldn’t get into Mali without our help. And that’s by design – the US was designated as the heavy lifter in the alliance.

And Russia could always shut off the natural gas pipeline to Europe, and sell it elsewhere.

Bad all the way around. Especially with Turkey going full islamist. And Chuck Hagel at Defense.

rbj on March 19, 2013 at 2:02 PM

You know the US taxpayer is going to end up paying in the long run.

Unfortunately the Republicans have cut Owebama off from additional taxpayer funds – at least so far. My bet is Owebama and his group of thugs are writing down the Cypress plan right now. Gotta open up the cash flow to congress and Owebama somehow – why not bank accounts? Isn’t that why the IRS will be given your bank account numbers and access under OwebamaCare?

katablog.com on March 19, 2013 at 2:34 PM

And Russia could always shut off the natural gas pipeline to Europe, and sell it elsewhere.

Bad all the way around. Especially with Turkey going full islamist. And Chuck Hagel at Defense.

rbj on March 19, 2013 at 2:02 PM

Yep, can’t get any worse than this…

jimver on March 19, 2013 at 6:46 PM