Aid to indebted states
Russia offers Cyprus aid with no strings attached
By Pierre Lemoine in Nicosia | Thursday 05 July 2012
Russia has offered the Republic of Cyprus “unconditional aid,” announced Cypriot President Demetris Christofias in Strasbourg, on 4 July. He repeated the message in Nicosia, on 5 July, as his country negotiates rescue aid for its ailing banks with the EU and IMF and hopes to steer clear of austerity plans like those imposed on Greece, Ireland and Portugal.
A few hours ahead of a ceremony in Nicosia marking the start of the first Cyprus Presidency of the European Union, to be attended by Presidents Van Rompuy and Barroso and the entire European Commission, Christofias, who is also the only head of state who is a member of a Communist party in the EU, denied giving preference to Moscow. He told reporters who asked him about the timing: “We applied for aid simultaneously to Russia and the EU. I don’t see any harm in turning to Russia, with which we have always maintained friendly relations. Russia is no longer the USSR. It has opted for a capitalist system that permits it to intervene and has offered to do so without conditions,” implying that the same cannot be said for the ECB-Commission-IMF troika. So the Russia and eurozone combination should not be seen as surprising, continued the president: “We can combine the two because we need money to recapitalise our banks and to pursue our development”. In Strasbourg the day before, Christofias had said that Russia was offering “low interest rates”. In late 2011, Cyprus already secured a low-interest loan from Russia in the amount of €2.5 billion for 2012. The Cypriot press has reported that talks are ongoing with Russia for a €3 billion loan for 2013.
Cyprus (fewer than one million inhabitants) is taking up the rotating EU Council Presidency in the midst of economic turmoil. The fifth eurozone country to seek aid, it is feeling the backlash of the Greek crisis, because the economy of this Mediterranean island is closely tied to the Greek economy, only 800 km away. In a country with a national budget of €7 billion, some of its banks hold large quantities of sharply devalued Greek sovereign bonds, €3.5 billion worth according to several sources. According to some experts, Cyprus needs €10 billion to shore up its banks and its public finances.
The Cypriot government, which is close to the labour unions, has also promised to fight to keep its business taxation, the lowest in Europe (10%), attractive for the many subsidiaries of foreign companies. This taxation rate was in place “well before EU accession” and is not a European competence, said President Christofias, who states unambiguously: “It is our means of survival”.
Cyprus has the lowest business taxation rate in the EU