Russia denounces European Union of theft with bailout of Cyprus
Plan will devastate those with the biggest savings accounts
As the European Union acted to keep the island nation of Cyprus from capsizing economically, Moscow accused the E.U. of outright theft as the plan will penalize most heavily those with the largest savings accounts there. Many foreign depositors in Cyprus are from Russia. All deposits above 100,000 euros will be frozen and used to resolve the Popular Bank of Cyprus' debts and recapitalize Bank of Cyprus through a deposit/equity conversion.
Panic has gripped Cyprus. There are worries that supplies may become scarce, leaving shortages in local markets and elsewhere.
Those with more than £85,000 in its banks will lose up to 40 percent of their cash as one of the measures imposed by Brussels to stop Cyprus from going under.
The deal will wind down the largely state-owned Popular Bank of Cyprus, also known as Laiki, and shift deposits below 100,000 euros to the Bank of Cyprus to create a "good bank."
Eurozone banking shares rallied as much as 2.4 percent at one point to lead a rally on global stock markets that reached as far as Australia.
In an ominous development, Jeroen Dijsselbloem, who chairs the Eurogroup of 17 eurozone finance ministers, said the move in Cyprus to inflict losses on banks' shareholders, bondholders and large-scale savers should become Europe's default approach for dealing with ailing lenders.
Eurozone leaders insist that the country's business model of attracting foreign investors, many of them Russians, with low taxes and lax financial regulation has all backfired -- and must be reformed.
Russian investors have around 20 billion euros in Cyprus, and would be particularly hard hit, prompting speculation they could pull out their money.
"In my view, the stealing of what has already been stolen continues," furious Russian Prime Minister Dmitry Medvedev was quoted by news agencies as saying.
In response, the Kremlin warned it could retaliate by "punishing" European businesses if the E.U. imposes a bank levy.
"There are a number of large German companies operating in Russia. You could look at freezing assets," Andrew Nekrassov, a former government adviser said.
Russia turned down desperate appeals for financial aid last week from the Cypriot government and the final bailout was likely to be more painful for its depositors than an initial rescue plan rejected by the Cypriot parliament.
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