Alex Orr: Bailout rejection by Cyprus may turn out to be a blessing

On Cyprus, this was being turned on its head as a condition of the European Union-instigated €10 billion (£8.5bn) bail-out package. Bondholders weren’t being touched, while the proposal was to punish depositors through a levy on bank deposits. Such a move was rejected by the Cypriot parliament and could ultimately prove to be a blessing in design.

Leaders and officials can claim Cyprus is a special case as often as they like, but depositors in other eurozone periphery countries won’t be prevented from worrying about their savings. In Italy especially, depositors could get nervous should these levies be enacted.

But it is the Russians who are set to benefit the most from the failure of the EU bailout. Russians hold the majority of the 40 per cent of the €68bn sitting in Cypriot banks and have for decades favoured Cyprus as an attractive place to stash their cash.

Moscow is exerting its influence to offer a potential alternative package, using the crisis as an opportunity to make new inroads into Europe and strengthen its strategic position. Gazprom – the Russian energy giant controlled by the state – seems to have offered Cyprus a proposal in which the corporation will undertake the restructuring of the Cypriot banking system in exchange for exploration rights for natural gas.

In addition, the Russians, who are in danger of losing their important military port in Syria, might be interested in Cyprus as an alternative.

The economic reason for getting depositors involved is that hitting senior holders of bank bonds would cause a domino effect through the eurozone. But, in the end, hitting depositors could turn out to be a wrong decision, if Cyprus makes investors and depositors elsewhere nervous about their savings in other periphery countries, causing capital to flow from the south to the north.

The rejection of the bail-out package by the Cypriot parliament might, therefore, prove a blessing in disguise economically, although it is Russia that will ultimately reap the reward if the EU cannot get its act together.

• Alex Orr is a board member of the European Movement