Updated: 03/25/2013 22:35 | By Agence France-Presse

Putin says Russia could ease terms of Cyprus loan

President Vladimir Putin suggested Monday Russia could pitch in to the Cyprus bailout by easing the terms of a 2.5-billion-euro ($3.3 bn) loan in the wake of the island's last-minute agreement with Brussels.


The comments should come as relief to European officials who feared that Putin may be furious with provisions of the package that may take a big hit out of the Cyprus holdings of Russia's business community and super-rich.

French Foreign Minister Laurent Fabius had even voiced the fear that Russia's reaction "could be harsh indeed."

But Putin -- who had only last week slammed a proposed levy on bank deposits as "unprofessional and dangerous" -- instead surprised observers by hinting at much easier terms to a loan that Moscow extended in 2011 and it is scheduled to be paid back by 2016.

Putin instructed "the government and the Russian ministry of finance to work with their partners on the issue of restructuring the loan previously issued to Cyprus," news agencies quoted his spokesman Dmitry Peskov as saying.

Peskov added that "considering the decisions adopted by the Eurogroup, Putin considers it possible to support the efforts of the president of Cyprus and the European Commission aimed at overcoming the crisis in the banking system of this island state," Peskov said.

Russians have some $31 billion in corporate and private deposits parked in Cyprus. A lot of that money is resting on the account of the Bank of Cyprus -- the island's largest -- that stands to suffer a haircut of some 30 percent on holding of more than 100,000 euros.

Moscow's Alfa Bank investment house said that "a bigger burden is to be placed on bigger, mostly Russian deposits under the deal."

"Plan B is no better for Russian companies than the original one. In fact, it is probably worse," added IFC Metropol analyst Mark Rubenstein.

"But this is only true for businesses that conducted their holdings through Cyprus. The situation there will be very unpleasant."

Putin holds the ultimate power in Russia and unilaterally decides the country's foreign and economic policies.

But feelings of disappointment were clear in Moscow before he spoke.

Prime Minister Dmitry Medvedev had accused Brussels of "stealing what had already been stolen", without making clear who had stolen the money in the first place.

Some of the money in Cyprus banks is believed to be held by Russians who had parked their money in an offshore zone after striking shadowy deals.

Parliamentary budget committee member Maxim Rokhmistrov said that Russia may have to "revert to steps of a similar unfriendly nature toward the European Union."

And influential parliamentary foreign affairs committee member Alexei Pushkov accused Brussels of "saving (Cyprus) by robbing depositors."

"If they are going to continue 'saving' like this in the future, all the money will flow out of Europe. And the EU will fall apart," Pushkov tweeted.

Some others sounded a more positive note.

First Deputy Prime Minister Igor Shuvalov said a silver lining of the haircut was that Russians now had an excuse to abandon their favourite offshore zone and bring their money back home.

"What is happening is a good signal to those who are ready to return their money under Russian jurisdiction, into Russian banks," Shuvalov said on Monday.

"We have very stable banks," he said.

Some analysts said this was unlikely because rich Russians would instead simply take their money to more distant offshore zones such the British Virgin Islands.

Yet they stressed that the haircut's consequences for the Russian economy should be minimal as long as Cyprus did not institute currency controls limiting the amount of money leaving its banks.

Renaissance Capital's chief economist Ivan Tchakarov estimated that direct losses from the haircut would account for just 0.15 percent of Russia's gross domestic product (GDP).

But "the cost could rise to non-trivial levels of 2.0 percent of GDP if Cyprus imposed capital controls," Tchakarov noted.

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