Cyprus and Russia edge closer together
2011-10-06 12:53:26
The close financial ties between Cyprus and Russia got a bit closer on Wednesday when the Nicosia government approved a €2.5 billion loan from Moscow.
The money will help Cyprus navigate the storms of the crisis in the eurozone (to which it belongs), while Russia will ensure that Cyprus, which handles a lot of Russia’s offshore banking, will remain a loyal partner whatever happens in the crisis.
As Reuters reported, the bilateral deal, due to come into effect in January 2012, will see Cyprus get €2.5bn at 4.5 percent for 4.5 years, according to the Cypriot government spokesman Stefanos Stefanou.
As the FT has reported, the Russian loan would enable Cyprus to avoid becoming the next eurozone member state to request an international bail-out after Greece, Ireland and Portugal.
The island’s budget deficit is set to reach 5.5 per cent of gross domestic product this year, while its banks are heavily exposed to Greece.
The yield on Cyprus’s 10-year benchmark bond, which has traded on a yield of over 11 percent for the past two months, was at 10.6 percent on Wednesday. That’s still high. But Russia has sometimes failed to deliver fully on its loan promises.
A €4bn loan plan to rescue Iceland in Oct 2008 was downgraded a year later to $500m. Negotiations subsequently collapsed. So Nicosia shouldn’t count its roubles before they roll in.