A proper solution must involve all interested parties, writes Dimitry Afanasiev
This Article was written By Dimitry Afanasiev and published in the Financial Times
At the weekend, Angela Merkel said those “responsible” for the Cyprus banking crisis would have to pay, not just European taxpayers. Russian depositors in Cyprus were to take a hit under an EU plan – rejected on Tuesday by the Cypriot parliament – because it was politically expedient for the German chancellor.
Why are Russian depositors being held responsible? Cypriot banks are in trouble not because Russians deposited funds. It is because the terms on which EU officials (including in Berlin) opted to restructure Greek debt to protect European investments harmed Cypriot banks, which held it in significant amounts. On the contrary, thanks to Russian investment, Cyprus has developed into a modern European country.
On what basis do German officials classify Russian depositors as money launderers? And what about the stripping of the accounts of the 60,000 British bank depositors, mostly retired, and average Cypriot citizens?
The answers are clear. The Germans are pushing a blatantly irresponsible “tax” on deposit holders in Cyprus because neither the average British or Cypriot pensioner nor Russian bank depositors have any meaningful voice with EU finance ministers. And neither does Cyprus, evidently – because, although it is an EU member, it is in a dire situation.
German officials’ implication that the actions are justified because Russian funds are “laundered” adds insult to injury. It is an absurd and irrelevant argument – many Russian depositors are small and medium-sized businesses that lawfully placed their money in Cyprus. In the eyes of Berlin, any Russian or Ukrainian with a bank account is suspect.
Cyprus is stuck between an old friend (Russia) and new EU partners (not so friendly now) willing to give Nicosia money if it forgets the old friend. The European Central Bank goes as far to say it is willing to sustain the stability of Cypriot banks and lend as much as needed to maintain liquidity after the confiscation. Common sense suggests the cost of such emergency loans will likely be much higher than the €6bn that the ECB is not willing to give now because tens of billions will flow out of Cyprus if this tax stands. Clearly, there is a better solution.
First, the EU has to stop this nonsense of expropriating deposits through confiscatory taxation. The EU cannot hold itself together if, at times of crisis, decisions are made from a national (German) rather than all-European point of view and small nations are allowed to be bullied.
Second, Russia and the UK have to stand up to Germany and fight back. International law provides a good basis for holding governments and individual officials liable for inducing expropriation.
Third, Russia should respond to Nicosia’s request for help, expressed most recently on Tuesday when the Cypriot finance minister flew to Moscow. Cyprus needs €16bn. Europe is willing to give €10bn. Russia should loan the other €6bn.
A proper solution for Cyprus must involve all interested parties. This should promote further development of the country so it can pay back its debts rather than stifle business and kill the banking system. The loan made to Cyprus should be secured by its mineral resources – including rights to recently discovered offshore gas reserves – land, property and banking stocks. These interests should then be securitised and privatised. Private interests will drive further economic development, making the creditors happy and restoring Cyprus’s fortunes.
The writer is chairman of the Russia-based law firm Egorov Puginsky Afanasiev and Partners