How important is Russia to Cyprus?

How important is Russia to Cyprus?Cyprus is a small island in Eastern Mediterranean and part of EU and Eurozone. The Cyprus economy heavily relies on the property market, tourism and the financial industry. The property market is in decline. The government has made few attempts to revive it by grating residence permits to those who have bought a property valued more than €300,000 and trying to attract Chinese customers who are looking for a new source of investment opportunity however this has seen very little success. British customers were making a major source of revenue for the tourism industry. However, a drop in number of British tourists has not been replaced with an increase in number of Russian tourists. Due to continuous decline in tourists some hotels have been converted into apartment blocks or even closed. The financial industry is relying heavily on the Russian market. Most of the foreign clients of Cyprus banks are Russians. The popularity of Cyprus companies is due to the low corporate tax rate of 10% only. Favourable terms and conditions of the double tax agreement between Cyprus and Russia made Cyprus companies a popular Russian investment vehicle. Cyprus has received a €2.5bn loan from Russia which helped Cyprus to delay a painful implementation of austerity measures. The Cyprus government has asked the Cyprus Greek Orthodox Church to negotiate a new loan as the state coffer is running out of money. However, Russians are not rushing to save Cyprus unless they get what they want. They definitely have their own vested interests in the Eastern Mediterranean. Russians have re-negotiated terms of a double tax agreement with Cyprus still leaving Cyprus as one of the best jurisdiction to invest in Russia. Russia is facing a challenge of losing its Mediterranean Naval base in Syria. Cyprus could be a good replacement for the Syrian Naval base. Also the Discovery of oil and gas deposits in the Cyprus territorial waters has also drawn some attention from Russia. However, the Russian-French consortium was not successful in securing the best deal from the Cyprus government. Some bitterness in the relationship between Cyprus and Russia has recently been increased with the EU pressure on Cyprus on over their close relationship with Russia and accusations of Cyprus banks for being a haven for Russian money. Some European parliamentarians have voiced their concern that saving the Cyprus banking system is like saving the money of Russian oligarchs and businessmen. They are asking the question "why does the EU have to pay for it?" When EU officials were talking about loose anti-money laundering procedures in the Cyprus banks, they are mostly pointing to the fact that there is too much Russian money in Cyprus. One of the latest developments is some suggestions from the European parliamentarians from Germany, Austria and Finland to send anti-money laundering experts to Cyprus and conduct a review of the anti-money laundering system in Cyprus. Norwegians have made even one more step further by allocating nearly €1m to the Cyprus anti-money laundering authorities to upgrade their technological infrastructure and software systems. If Cyprus does not apply for the bailout it will be difficult for the EU officials to exercise such pressure on Cyprus over its ties with Russia as Russia is a major market for the Cyprus tourism and financial industry. Cyprus is in a very difficult position. The current Cyprus government has not been able to seal any agreement with the Troika leaving most of the difficult decisions and actions for the new government which will be elected in February. Most probably, Cyprus will follow the Greece scenario when the new government gets financial support but has to make heavy sacrifices. Russia is what is keeping Cyprus afloat now. It remains to be seen in the long term if the new Cyprus government will be able to retain the Russian market and satisfy the EU bailout demand.

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