Russias participation in Cyprus bail-out under question.

By bne IntelliNews March 22, 2013
As Cyprus is trying to come up with new ways to raise EUR 5.8bn needed to secure the financing from ECB, EC, and IMF, Russia's participation in the package is not clear. According to the latest reports a "Plan B" for which the Cypriot parliament is expected to vote on Friday morning includes restructuring of the banking sector (two largest banks Bank of Cyprus and Laiki), new legislation allowing capital controls, and establishment of a solidarity fund which would pool pension savings, state assets, securities, etc. To remind, ECB allowed until Monday to raise EUR 5.8bn, otherwise the Emergency Liquidity Assistance (ELA) will stop. Delegation headed by FinMin Michael Sarris is in Moscow negotiating possible participation of Russia: according to Reuter's sources among Russian officials this includes financing of up to EUR 5bn in return for energy and other assets. At the same time PM Dmitry Medvedev told the press that offshore gas extraction assets proposed by Cyprus are a difficult issue, due to unproven exact amount of the reserves and territorial disputes with Turkey. Russian large state-controlled banks also denied their interest in acquiring restructured "good" assets of Cypriot largest banks, which was reported as possible part of the solution (although Reuter's sources assume that still could be carried out through development bank VneshEkonomBank which would be faced with less regulation as a quasi-banking structure). In the meantime the war of word between Kremlin and Brussels intensified, with Medvedev calling the EC-designed bail-out plan of Cyprus "absurd" and threatening, among other things, to revise the share of EUR in Russia's Fx reserves and stressing that the share of "grey funds" from Russia held in Cypriot banks is not as large as it is being presented. To remind, Cyprus parliament this week rejected the proposal of EC to raise EUR 5.8bn by means of a one-time 10% levy on large deposits held in Cypriot banks, which threatened over USD 2bn losses for Russian depositors. The prospect of such measures infuriated Kremlin, with president VladimirPutin calling the measure "unjust, unprofessional, and dangerous", and PM Dmitry Medvedev seeing it was "simply a confiscation", while foreign press reminded that Russia defaulted on over USD 40bn of debt in 1998. Kremlin got more involved in the solving the Cyrpus crisis, despite Angela Merkel reportedly forbidding Cyprus president Nikos Anastasiades to negotiate with anyone outside the trio.

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