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Medvedev Lambasts EU Over Cyprus Levy

Photographer | Collection | Getty Images

Russian prime minister Dmitry Medvedev has lambasted the EU's handling of the Cyprus debt crisis, comparing a plan for a levy on bank deposits to measures that hurt savers under the Soviet Union.

However, Moscow has yet to offer any concrete help to the Cypriot government, which is anxiously seeking alternative ways to fund an international bailout after the island's parliament voted against a bank deposit levy plan hatched with the euro zone.

Mr Medvedev's comments came as Michael Sarris, Cyprus's finance minister, met senior Russian officials to seek aid from the Kremlin to bail out its struggling banking sector.

(Read More: Cyprus a Sign World Is Not Better: StanChart CEO)

There was mounting concern among Cypriot officials that Mr Sarris had failed in his mission as the government in Nicosia frantically hunted down other sources of revenue. The central bank said the banking system would remain closed until next Tuesday to avoid a bank run.

Officials in Moscow were privately skeptical that Russia would bail out Cyprus or even provide further bridging loans. Russian business leaders have made it clear they would insist on cold-eyed, commercial criteria for any investments.

"Buying worthless equity in a bank for a billion or two. That is not going to go very far here," said one banker.

Mr Medvedev said the euro zone's bailout proposals risked "undermining trust in financial institutions as a whole", and not just in Cyprus. Criticising the EU for showing the same disregard for small savers that the Soviet Union once did, the premier said if an "unprecedented" confiscation of assets in Cypriot banks went ahead, Moscow might reconsider its double taxation treaty with the island.

(Read More: Cyprus Scrambles to Avert Meltdown, EU Threatens Cutoff)

Of Russia's top banks, VTB, Gazprombank, Sberbank and Alfa Group all denied they were part of negotiations to invest in financial assets in Cyprus. "Now is not the best time," a person close to VTB said. Gazprom denied reports that it was considering investments in Cyprus offshore gas developments.

The Russian prime minister did not rule out possible support for Cyprus but said talks would continue with European Commission officials, including president Jos Manuel Barroso, in a pre-planned meeting in Moscow starting later on Thursday.

In the most detailed comments yet from Moscow on the bailout plan voted down by the Cyprus parliament on Tuesday, Mr Medvedev said the EU and Cyprus had acted "like an elephant in a China shop".

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"All possible mistakes that could be made have been made by them," he added. "The measure that was proposed is of a confiscation nature, and unprecedented in its character. I can't compare it with anything but ... decisions made by Soviet authorities ... when they didn't think much about the savings of their population. But we are living in the 21st century, under market economic conditions. Everybody has been insisting that ownership rights should be respected."

Mr Medvedev also criticized the decision to freeze the Cypriot banking system, and not just withdrawals from troubled banks, warning that if this continued for any length of time it could "result in losses ... even bury the whole banking sector of Cyprus. It will cease to exist," he said.

(Read More: Cyprus Shows 'Cracks in the Floor': Godfrey)

Hitting out at claims led by Germany that Cyprus is widely used by Russian entities for money laundering, Mr Medvedev said "not all of them are actually trying to hide behind the special Cypriot jurisdiction, it is just a convenient form of work".

"We have got an agreement on avoiding double taxation" with Cyprus, Mr Medvedev added. "I don't know whether we need this agreement any more. Maybe we could pose the question of disowning this agreement after such a confiscation."

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