Russia and Cyprus were set to launch a second day of talks in Moscow on Thursday over a multibillion-dollar loan to help save the Mediterranean island from a financial crisis that could have a disastrous impact across Europe.
The Cypriot finance minister, Michael Sarris, held inconclusive negotiations with top Russian officials on Wednesday, but said he would stay in Moscow “as long as it takes” to reach a deal.
A lifeline from the Kremlin has gained increasing urgency after the Cypriot parliament rejected a plan on Tuesday to impose a levy on bank deposits in order to raise €5.8bn towards a €10bn bailout offered by the European Union.
Fears that a financial meltdown could ripple across Europe continued to grow. The Cypriot government was said to be considering imposing capital controls amid fears that money would flood out of the country once its banks were re-opened.
To stem the damage, Cyprus is seeking a five-year extension on a €2.5bn loan granted in December 2011 that is due to mature in 2016. It has also asked Russia to refinance the loan and lend an additional €5bn.
With an estimated $31bn held in Cypriot banks by Russian banks, businesses and individuals, as well up to $40bn in loans to Cyprus-registered firms, Russia has been gripped by fear since the crisis began to unfold, with state-run television transmitting rare live reports from outside the Cypriot parliament.
Yet the Kremlin’s reputation for seeking hard assets abroad in exchange for aid has prompted speculation that negotiations were dragging as it bargained for stakes in offshore gas fields and Cypriot banks.
“We had a very good first meeting, very constructive, very honest discussion,” Sarris said after meeting Anton Siluanov, the Russian finance minister. “We’ve underscored how difficult the situation is.”
However, he said, there were “no offers, nothing concrete”.
“We’ll now continue our discussion to find the solution by which we hope we will be getting some support,” he said. Asked by reporters whether that meant simply renegotiating a loan, Sarris said: “No, we are looking at things beyond that.” He later met Igor Shuvalov, a deputy prime minister and close ally of Vladimir Putin.
Much speculation has fallen on Gazprom, the state gas monopoly that has often been dubbed a tool of Kremlin foreign policy. A spokesman for the firm shrugged off speculation that it was seeking exploration rights for gas deposits in the Mediterranean Sea. “There have been a lot of fantasies in the press,” the Gazprom spokesman Sergei Kupriyanov told the Guardian. “We have made no proposals.” He said no Gazprom officials took part in Wednesday’s talks.
The appearance in Moscow of George Lakkotrypis, Cyprus’s minister for energy, commerce, industry and tourism, only fuelled the speculation.
Cypriot officials said he was visiting a tourism exhibit.
The Russian press has reported that Gazprombank, a subsidiary of the gas giant, was interested in Cyprus Popular Bank, the country’s second biggest. The Cypriot government on Wednesday denied reports that it had been sold to foreign investors.
Charles Robertson, the global chief economist at Renaissance Capital, a Russian bank, said a bid for gas fields would fit with Putin’s strategy of boosting the country’s influence on the basis of natural resources. “I could see some potential deal around the natural gas fields – energy is something that Putin believes makes the country powerful … it would fit with his long-term agenda,” he said. A deal on banks appeared less likely, he said, particularly considering Russian clients were now seeking to move funds out of Cyprus and its banks were looking less than healthy.
A proposal to levy a charge on deposits in Cypriot banks provoked widespread rage in Moscow, where it was seen as a direct attempt to punish Russian clients because of a reputation for ill-gotten gains.
“It is illegal, crazy and ludicrous to label everyone a money-launderer based on their ethnicity,” said Dmitry Afanasiev, the chairman of Egorov Puginsky Afanasiev & Partners, a law firm that advises Russian companies on Cypriot investments. “Last time bank deposits were confiscated in Europe with ethnic connotations was in the 1930s.”
He accused Europe, led by Germany, of seeking to punish Cyprus for its growing ties with Russia.
“It’s cold war thinking – not only is it not right or fair, but it’s actually not pragmatic,” Afanasiev said. “This cold war thinking, at this point, is about to cause a financial meltdown in the European Union.”
Cyprus finance minister to stay in Russia ‘as long as it takes’ to reach deal – The Guardian}