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Cyprus Deposit Seizure Hurts Trust in Europe’s Banks, Putin Says

Russian President Vladimir Putin accused European Union and Cypriot authorities of undermining trust in the continent’s banking system by taxing deposits as part of the cash-strapped Mediterranean island’s bailout.

“Forfeiture of investors’ funds -- including of Russian origin -- wherever it happens, in Cyprus or in other places, undermines credibility of the banking system of the entire euro zone,” Putin said in an interview with Germany’s state-owned ARD television before an April 7 visit to the European nation.

Putin said he wasn’t angry that the EU didn’t ask Russia for assistance in Cyprus’s rescue package because its banks’ difficulties “have shown how risky and insecure investments in Western financial institutions can be.”

Russia rejected Cypriot requests for additional financial aid last month after criticizing plans to force losses on insured deposits. After a European-led rescue agreement was reached that only punished uninsured depositors, Putin ordered the government to resume talks with the island on restructuring a 2.5 billion-euro ($3.3 billion) loan granted in 2011.

Russian companies and individuals have $31 billion of deposits in Cyprus, according to Moody’s Investors Services and Monument Securities. The bailout will probably provoke an outflow of Russian money back home, Putin said.

“The more you ‘pinch’ foreign investors in the financial institutions of your countries, the better for us because the affected, offended and frightened -- not all of them but many -- should, so we hope, come to our financial institutions and keep their money in our banks,” he said.

At the same time, Putin signaled support for Europe’s financial system and reaffirmed trust in the euro and the continent’s major economies. Russia’s central bank keeps more than 40 percent of its about $500 billion of reserves in euros.

Russia made “the right choice” to keep “such a large share of our gold and currency reserves, of our reserves in general, in the European currency,” Putin said.

To contact the reporter on this story: Ilya Arkhipov in Moscow at iarkhipov@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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