Eurozone chief Jeroen Dijsselbloem said Cyprus, which still has significant investments from Russians despite hitting big account holders with huge losses from their bank accounts, shouldn’t be affected much by European Union sanctions slapped on Russia for annexing the Crimea region of Ukraine.
“The situation in Ukraine is a concern for Europe as a whole,” Dijsselbloem said, the business news agency Bloomberg reported. “And also for Cyprus, of course. But if we are successful in not escalating the crisis further, and as a consequence sanctions don’t have to be increased, I expect the effects will be very limited.”
The Cypriot government asked the EU to consider the impact of sanctions on its economy, Dijsselbloem said. “For the moment, there’s no reason to compensate Cyprus,” and there’s “no reason to do more because of the Russia crisis,” he said.
Dijsselbloem said Cyprus has a “long and intense” relationship with Russia. “There are many investments from Russia into Cyprus,” he said. “Often, again, with money that is in Cyprus. That will not suddenly disappear.”
But any escalation in the Ukraine crisis poses a threat to Cyprus’s economy, the outgoing governor of the country’s central bank said in an interview with Reuters, noting that he expects the bailed-out Eurozone country to return to growth in 2015.
Panicos Demetriades, who participated in talks which saved Cyprus from bankruptcy a year ago, said lenders underestimated the resilience of the island’s economy, one of the smallest in the 17-member currency zone. He also said he anticipated capital controls could be fully lifted this year.
Cyprus is receiving 10 billion euros ($14 billion) in aid from the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB).
In March 2013 it was forced to wind down Laiki, Cyprus’ second-biggest lender, and seize 47.5 percent of bank deposits over 100,000 euros ($137,000) into equity at the Bank of Cyprus. The “bail-in” occurred after IMF debt sustainability analysis determined the country could not afford debt exceeding 100 percent of its GDP.