The Cyprus saga

Gazprom Is or Is Not Offering Cyprus a Bailout

_{The latest news: Russian energy giant Gazprom either has or has not offered to bail out the country in exchange for exploration rights.}

CNBC,

16 March, 2013

Anastasios Papapostolou of Greek Reporter says that Sigma TV, a Cyprian television outfit, is reporting on an alternative bailout from Gazprom. Here's what he wrote:

Russian energy giant Gazprom has offered the Republic of Cyprus a plan in which the company will undertake the restructuring of the country's banks in exchange for exploration rights for natural gas in Cyprus' exclusive economic zone, local media reported.

Representatives of the Russian company submitted the proposal to the office of Cypriot President Nicos Anastasiades on Sunday evening, Sigma TV reported.

The proposal states that Gazprom will fund the restructuring of the country's crippled financial institutions in exchange for substantial control over the country's gas resources while Cyprus won't need to take the harsh bailout package offered by the EU.

EU offered a 10 billion euros rescue package to Cyprus with the condition of raising 5.8 billion euros ($7.5 billion) by taking a piece of every bank account in Cyprus. The originally proposed levies on deposits are 9.9 percent for accounts exceeding 100,000 euros and 6.7 percent on anything below that.

Cypriot President Nicos Anstasiades is not willing to discuss the Russian's offer, according to Newsit, [which] cited an anonymous source close to the President.

But the Russian news agency ITAR-TASS says no such offer is on the table although the offer has been "initiated." Also, Gazprombank's spokesman both could and could not be reached for comment:

Russia's Gazprom has not offered the Republic of Cyprus financial assistance in restructuring the country's banks in exchange for the right to gas production in the exclusive economic zone of Cyprus. Gazprombank initiated this offer, a spokesman for the gas giant told Tass.

Itar-Tass has failed to get an immediate commentary from Gazprombank as of yet.

Expect a lot more of this kind of confusion in the next few days. 

Why are the Russians so concerned about Cypriot banks? Because Russians have billions deposited in them.

As Holly Ellyat explains:

Conservative reports put the amount of personal deposits of Russian money in Cypriot banks at 20 billion euros, though it could be as high as 35 billion euros, according to media reports. Last year, Moody's ratings agency reported that at the end of 2012, Russian banks had around $12 billion placed in Cypriot banks, an increase of around $3 billion from 2011, according to data from Russia's central bank.

Russian businesses and investors have been attracted to Cyprus for its low corporate tax rates and relaxed financial regulation. The latest bailout proposal, the first of its kind in the euro zone, would see corporate tax raised from 10 to 12.5 percent. The richest depositors stand to lose 15 percent of their savings.

Paul Krugman is even more direct about what is going on:

Cyprus is a money haven, especially for the assets of Russian beeznessmen; this means that it has a hugely oversized banking sector (think Iceland) and that a haircut-free bailout would be seen as a bailout, not just of Cyprus, but of Russians of, let's say, uncertain probity and moral character.