Cyprus bailout: Island may face recession for decades, say economists

NICOSIA (AFP) - Russians are preparing to withdraw billions of euros from Cyprus and the island will plunge into a recession lasting for decades due to the onerous terms of a EU bailout, economists warned on Monday.

"The Russians are already indicating they want to withdraw their money. Why should they stay? They will go somewhere where they can be protected; we can't protect them," economist Simeon Matsi told AFP.

"We have indications that billions (of euros) will be withdrawn, we already know of about three billion that is ready to move. They are already asking lawyers to draw up documents to withdraw money."

As a condition for a desperately-needed 10-billion-euro (S$16 billion) bailout for Cyprus, fellow eurozone countries and international creditors Saturday imposed a levy on all deposits in the island's banks.

Deposits of more than 100,000 euros will be hit with a 9.9 per cent charge, while under that threshold the levy drops to 6.75 per cent.

The controversial tax is seen hitting Russian pockets hard, with experts estimating that Russian deposits in Cypriot banks amount to at least 15.4 billion euros of the estimated 70 billion euros of deposits held by Cyprus banks.

Russian President Vladimir Putin on Monday criticised the proposed tax, describing it, according to a spokesman, as "unfair, unprofessional and dangerous".

"The deal by the eurogroup dealt a very heavy blow to Cyprus - it was the death knell for the financial sector," said economist Matsi.

"No one is going to trust Cyprus any more, whatever happens. The eurogroup, International Monetary Fund and the European Central Bank have managed to destroy the reputation of Cyprus."

He predicted that Cyprus banks, which were scheduled to reopen on Tuesday after a three-day weekend, will remain closed for a long time to prevent a rush on accounts.

Economist Castas Apostolides said the Cypriot government went unprepared into negotiations with the eurogroup.

"We should have called Europe's bluff," he said.

"A bank haircut on deposits is unacceptable; they should have walked out because without a business sector there is no Cyprus economy," Mr Apostolides said.

"Cyprus will be unable to exit recession for the next 20 years. Our children will pay for this mistake."

Mr Anastasiades was on Monday seeking the backing of MPs for the EU bailout deal that has also jolted global markets and raised fears of a new eurozone debt crisis.

Ahead of the afternoon parliamentary vote on the hugely unpopular measure, negotiators were seeking to soften the blow on small-time depositors, who have been stunned by the announcement that their savings will be skimmed.

"If the proposal is rejected today (in parliament) then we will most probably be out of Europe and have to start again from scratch," said Mr Masti.

A University of Nicosia poll meanwhile found that 73 per cent of Cypriots believe the newly-elected president had failed to secure the best possible deal for Cyprus.

It also found that 71 per cent of respondents believe parliament should vote against the bank levy, while 72 per cent said deposits under 100,000 euros should not be touched.

Sixty-two per cent said that Cyprus should stay in the eurozone.

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