As a deadline on Cyprus to come up with a financial bailout plan nears, a possible rescue from Russia looks to have fallen apart, leaving the island nation few options for staving off default.
Russian Finance Minister Anton Siluanov said as far as Moscow was concerned “the talks have ended,” but Prime Minister Dmitry Medvedev left the door open, saying aid from Moscow would be contingent on Cyprus gaining European Union backing for its other money raising ideas.
Cyprus had hoped to woo the Russians by promising stakes in natural gas reserves recently discovered off the island’s cost. Although the prospects of a deal looked shaky, Medvedev said that Russia “hasn’t closed the door, hasn’t said ‘no’” to Cyprus.”
Cyprus has been a favorite tax haven of Russia’s oligarchs, who have an estimated $30 billion or more in the country’s banks. Cypriot officials had hoped for an extension on the terms of a $3 billion Russian loan and for an additional line of credit from Moscow.
NPR’s Joanna Kakissis reports that Cypriot lawmakers were set to vote on Friday on a new bailout plan to keep the country solvent and in the euro zone. She says that the plan includes radically restructuring the country’s biggest banks and creating an investment fund to issue bonds.
Earlier this week, Cyprus rejected a bailout plan from international lenders that would have required the Mediterranean country to levy a one-time tax on the nation’s domestic and foreign depositors to raise $7.5 billion toward a $13 billion bailout. On Thursday, the European Central Bank gave Cyprus four days to come up with a ‘Plan B’ or face a cut off in credit to its banking sector.
The prospect of heavily-indebted Cyprus defaulting on its EU bond payments and being forced out of the euro zone sent ripples through the financial markets. But The New York Times points out that:
” … the broader financial system in Europe, the losses resulting from a Cypriot banking collapse and the country’s return to its former currency would be minimal compared with the havoc that Greece would have created had it not been bailed out.
Greece may well have been too big to fail last year, but Cyprus, which creates less than one-half percent of the euro zone’s gross domestic product, is certainly not.”