After a terrible week on the island of Cyprus politicians finally came up with a plan to save the country's banking sector. It was a tough week resulting in difficult decisions. In Brussels at the weekend a bailout plan was agreed which many people will view as theft, pure and simple. A bank levy on savings of 100,000 Euros was set at around 30%.
Ministers of the European Union may think that they now have the Cyprus banking crisis sewn up but perhaps they should think again. It is painfully clear that unemployment is set to rise on the island of Cyprus and other problems are expected but what about Russia, a country with many investors in Cyprus? Spiegel online reports,
Russia has sharply criticized the bailout deal for Cyprus, with Prime Minister Dmitry Medvedev accusing the EU of theft. Russian state television even likened the forced levy imposed on wealthy investors -- many of them Russian -- to the expropriation of Jews by Nazi Germany. The verdict of Russian state television on Europe's effort to save Cyprus was damning. The last week "will enter the history books of the EU as a destructive one," said Dmitry Kiselev, the presenter of the popular news program Vesti Nedili on the Rossiya channel.
An excessive viewpoint? Well the comparison between the way Nazi Germany viewed Jewish wealth and the way modern Germany and the E.U view Russian wealth is easy to see. The alleged one-off bank levy in Cyprus will hit investors with more than 100,000 Euros in accounts, many who are Russian. The Telegraph reports the Kremlin is considering freezing German assets in Russia as payback for the bailout deal.
According to the Telegraph, "Head of the Eurogroup of eurozone finance ministers Jeroen Dijsselbloem, a Dutchman, has spooked global markets by saying the Cyprus bank restructuring deal should be considered a template for the rest of the single currency bloc."
Russian Prime Minister Dmitry Medvedev vaguely acknowledged that some Russian money invested in banks on Cyprus may be corrupt but he still condemned the E.U. bank levy. There is a great deal of speculation and there are now reports that banks on Cyprus will not re-open Tuesday as expected. The latest news is the banks will re-open Thursday, but as they say, watch this space.
The Cyprus banking sector will not survive this crisis. Many jobs will be lost and investors will pull the plug on Cyprus. They may pull the plug on more though.