(March 26, 2013) - The latest crisis in the Eurozone is not just Cyprus' 15 minutes of fame—it could also be Russia's ideal chance to prove its worth as an emerging market.
That's one of the ideas Jim O'Neill, chairman of Goldman Sachs Asset Management, floated in his latest client note.
"For several years now, there is not a week going by where I don't receive at least one email suggesting I should drop the 'R' in BRIC," he wrote. "Russia is priced at a major discount to its BRIC peers, reflective of a general negative view about the country. It is looking for an initiative or opportunity to change this view, and is soon about to host the biggest annual meeting of world leaders. And, a tiny economy of $22bn, Cyprus has banks with a lot of savings from Russian wealth owners. It doesn't take a genius to figure out that here is a massive opportunity to help itself—and perhaps even the EU."
The current agreed-upon plan to bail out Cyprus includes shuttering the island nation's second-largest bank, Cyprus Popular Bank Pcl, and imposing a tax on deposits above the insured threshold of €100,000.
There is no definite data available, but according to the Financial Times, the majority of these large deposits ultimately belong to Russian beneficiaries. This means, of course, that Russian depositors will be responsible for the lion's share of the Cypriot bailout by default.
While Russians will already be left holding the bailout bag for Cyprus to a large extent, O'Neill said that Eurozone officials may still not be keen for greater involvement in the mess from the 'R' in BRIC.
"I have spent much of this week thinking that the Russian policymakers have such a great opportunity, but to most people I discuss it with, the answer is usually: no chance, the EU (or perhaps especially, Germany) wouldn't like that," he wrote. "Is it that the EU disapproves of certain aspects of Russian life and some of their wealth holders' activities inside the EU? ... Is the EU going to lead Europe or simply follow events, especially decisions made in key member countries? And, are the EU and its key members going to look outward and forward instead of inward and backward? Isn't this also an opportunity for the EU to try and significantly improve its relations with Russia?"
The Cyprus situation continues to unfold, with banks on the island expected to remain closed until Thursday.
Related webcast: Putting the 'R' Back in BRIC