Cyprus Poses Fresh Crisis as EU Questions Russian Investment
March 21,2013
Political leaders in Cyprus appear to have abandoned plans for a one-off levy on bank deposits in return for a financial bailout from the European Union. The Mediterranean island has long been an attractive place for foreign investors, in particular Russians - and that has sparked a heated discussion in Europe.
In Cyprus the banks may still be closed, but lines at cash machines are still growing. Alongside the Cypriots withdrawing their savings are many foreign nationals.
With a corporate tax rate of 10 percent, Cyprus has long attracted foreign investors. But this Mediterranean island has other attractions, says International Finance Professor Kate Phylaktis, of London's Cass Business School, a former consultant to the Cypriot government.
"It is not just because of tax," said Phylaktis. "We speak English, I mean the English language is very well spoken in Cyprus. Our legal system is based on the English legal system so our institutions are very good and well understood by everyone so that is very attractive to foreign investors.
The ratings agency Moody's estimates there is $31 billion of Russian money in Cypriot bank accounts. Phylaktis says close links between the two countries go back to the break-up of the Soviet Union.
"We have had very long links and close relationship with the Russians," she said. "There are about 20,000 Russian families living in Cyprus, so obviously these Russians have property, have deposits, have businesses, which bring a lot of money to Cyprus, there is no doubt.
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