Relations slide as Russia closes the door on downtrodden Cyprus

Cyprus’s relations with Russia are taking a severe battering.

The Mediterranean island hosts up to 40,000 Russian speakers, and the holiday centre of Limassol is regularly referred to as Limassolgrad for its Russian schools, radio station, newspaper, and specialist Russian shops.

Most live in villas overlooking the sea. Getting a visa is not difficult and taxes are low — even non-existent on the money they deposit in the local banks.

Cypriot authorities point out, however, that the Russians stash or invest more money in Britain and Austria.

Cyprus also had the unique distinction of having a Communist president, Demetris Christofias. Last July, when the island took over the EU presidency, he told a number of journalists that he was confident Moscow would agree to give them a second loan, without conditions.

The troika had just arrived in Nicosia and Mr Christofias would not say how much they would seek from Moscow, but it was understood to be in the region of €10bn — the sum the EU has now agreed to extend, provided Cyprus raises an additional €6bn through taxes, sales, and possibly shutting banks.

At the time, Cyprus’s debt to GDP was 72% — modest by many EU standards.

The regular EU-Russian summit coinciding with the island’s request for a loan from Moscow during the week probably did not help with reports commission president José Manuel Barroso discussed the matter with the country’s prime minister, Dmitry Medvedev.

Mr Barroso apologised for not informing Moscow in advance of the decision — and the assumption that Russia would double the maturity of its €2.5bn loan to the island to 10 years and reduce the 4.5% interest rate.

And while the prime minister and the Russian president, Vladimir Putin, castigated the eurozone finance minister for the bailout conditions that would see Russian money in Cypriot banks taxed at around 9.9%, the Cypriot finance minister has given up trying to help.

Since then, the prospect for the €20bn or so of Russian money lodged in Cypriot banks has deteriorated, with some reports saying it will now be subject to cuts of up to 40% unless the amounts are less than €100,000.

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