Russian President Vladimir Putin criticized a proposed penalty on Cypriot bank deposits, imposed as part of an international bailout, saying it would set a dangerous precedent.
“Such a decision, if it’s adopted, will be unfair, unprofessional and dangerous,” Putin told a government meeting today, according to a statement posted on the Kremlin website.
The levy will probably provoke an outflow of Russian money toward other jurisdictions, according to Moody’s Investors Services and Monument Securities. Russian companies and individuals have $31 billion of deposits in Cyprus, according to Moody’s.
A double-tax avoidance treaty and low tax rates have made Cyprus the conduit of choice for Russians moving money into and out of their country. Including loans to companies registered in Cyprus, Russia’s exposure is about $60 billion, Moody’s estimates.
“We have already been seeing Russian banks shifting money to Switzerland, Luxembourg and the Baltic states,” Eugene Tarzimanov, a senior analyst at Moody’s in Moscow, said by phone today. “That trend will likely accelerate.”
There’s a 50-50 chance the Cypriot bailout will fail because of “massive danger” that large amounts of Russian cash will flee Cyprus due to the plans, Marc Ostwald, strategist at Monument Securities Ltd. in London, said in an interview. Ninety percent of Russian deposits will be free to leave the country if the levy is approved, he added.
Russia may reconsider its role in the Cyprus bailout because it wasn’t consulted over the bank tax, state news service RIA Novosti reported, citing Finance Minister Anton Siluanov. He said last month that Russia was willing to restructure a 2.5 billion-euro ($3.24 billion) loan it provided in 2011 and possibly agree to a lower interest rate.
The Cypriot move casts doubts on the banking system not only in that country but “in the countries of the European Union,” said Russian Deputy Economy Minister Sergei Belyakov.
Cyprus’s President Nicos Anastasiades is trying to persuade lawmakers to back the plan to impose losses on the island nation’s depositors as part of a 10 billion-euro bailout aimed at preventing a financial collapse and a possible departure from the euro area.
The one-time levy, designed to raise 5.8 billion euros, means a smaller bailout for the east Mediterranean country than the 17.5 billion euros envisaged at one point. Under the EU plan, Cyprus will impose a levy of 6.75 percent on deposits of less than 100,000 euros and 9.9 percent for 100,000 euros or more.
Cyprus is seeking to soften the impact for most account holders including by making depositors with more than 500,000 euros pay 12 percent and taxing deposits of less than 100,000 euros at a 3 percent rate, Antenna TV reported.
“This is the same as Stalinist confiscations,” Russian newspaper tycoon Alexander Lebedev said by phone today. “That’s the end of Russians using Cyprus in my view.”
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