Russian President Vladimir Putin has called a proposed tax in Cyprus on bank deposits that comes as part of an EU bailout deal "unfair, unprofessional and dangerous," his spokesman said.
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| The many wealthy Russians with properties in Cyprus will have to pay a levy. |
UK Telegraph - "Putin said that this decision, in case of its adoption, will be unfair, unprofessional and dangerous," Russian news agencies quoted Kremlin spokesman Dmitry Peskov as saying on Monday.
The reports said Putin made the comments during an emergency meeting with members of his administration and economic advisers to discuss the Cyprus tax.
It is estimated that some €20bn of the €70bn on deposit in Cyprus – a country of only 800,000 people – belongs to Russians. Those deposits helped the banking sector grow beyond all reason, just like in Iceland.
Russia's number two bank VTB - a state-owned institution - alone had $13.5bn (£8.9bn) resting in Cyprus through a subsidiary and was due to lose a tenth of that amount, news agency AFP reported.
"VTB Group is carefully monitoring the situation," the bank said in a statement. "We can only assess its repercussions after studying the text of the law."
Cyprus, eurozone officials, the International Monetary Fund and the European Central Bank agreed at the weekend that savers in the island's outsized banking system would take a hit in return for the offer of €10bn ((£8.6bn) in much-needed aid.
In exchange for the bailout, creditors would impose a one-time tax of 6.75pc on all bank deposits under €100,000 and 9.9pc over that amount.
As tourism boomed on the island, among the numbers of foreign visitors were thousands of Russians, attracted by political connections with Moscow that went back decades, a shared Orthodox faith, and a banking sector that not only didn’t ask too many questions, but commonly pays interest rates of 6pc and upwards.
Over the past decade, many such Russians settled in Cyprus or bought second homes. The city of Limassol, the financial centre, became known as “Lima-grad”: it now boasts expensive boutiques for Muscovites, rental firms offering Porsches rather than Fiat Pandas, and three Russian-language newspapers.
The move to tax savers in Cyprus has been widely criticised, with many concerned it will set a precedent for other eurozone countries.
Mark Bayley, a Sydney-based credit strategist with advisory company Aquasia, told Bloomberg, also said it set a "dangerous precedent" and was a "bail-in of depositors".
“More contagion fears will spread through investors and it will encourage depositors in the European periphery to move their funds to a safer place, either under the pillow or to Germany,” he said.
Barclays said in a report that the deposit levy was an “ominous” sign of how bail-outs were being handled.
Lars Seier Christensen, the chief executive of Denmark’s Saxo Bank, wrote: “If you can do this once, you can do it again.”
The bailout follows those for Greece, Portugal, Ireland and Spanish banks, but it is the first one that dips into people's savings to finance a bailout.
By Rebecca Clancy, and agencies
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