The fortunes of Cyprus may pick up after Russia removed the sunshine island off an investment black-list.
The besieged government sees the move as good news for the economy, as financial problems have left the nation’s coffers almost empty – with only enough cash to pay public sector salaries until March.
Coming off the black-list should trigger confidence in investors.
Russia and Cyprus have enjoyed a close economic relationship, with Russia even helped Cyprus with a much-needed bail-out loan of £2 billion in 2011 after Cypriot banks were badly hit by losses from loans to Greek banks.
Cyprus is also having problems negotiating another bail-out from the European Union of around £8.4 billion.
Demands for Russia to bear some cost
One reasons for the delay is Germany claims Cyprus has helped Russian billionaire businessmen with money laundering and demands Russia should also chip in to the bail-out.
Cyprus is desperate to seal a quick bail-out deal from Eurozone partners and the International Monetary Fund.
The government has already slashed costs and cut wages to save money.
One analyst, Stelios Platis, said the Russian decision to allow investment again was prompted by Cyprus beefing up a double taxation agreement between the two countries.
The Cypriot government has strongly refuted an allegation made by German intelligence agencies that the island is a centre for money laundering which has become a sticking point in bail-out negotiations.
Unsustainable debt
Now, the EU is looking to Russia to either extend the previous loan repayment deadline because Cyprus is struggling to raise the cash – or add to the bail-out fund planned by the EU.
The size of the next bail out is also causing concern since Cyprus may need around £14 billion and German Chancellor Angela Merkel has already warned that the island will ‘not get any special treatment’.
Such a sizeable loan will take the Cyprus debt ratio to 170% of its GDP – and that’s a figure which has already been decided as being unsustainable for other countries which have received bailouts.
Cyprus re-elects a new president in February 2013 and the front-runner in the polls is Nicos Anastasiades.
He has already pledged to do what it takes to get international help and has warned Cypriots that there ‘cannot be a delay to the bailout’ but the credit ratings agency Moody’s has already downgraded Cyprus to junk because the threat of the country defaulting is becoming real.
