A forgotten angle of the story - Russian banks.
Russian banks have loaned Cyprus-based Russian companies $40 billion, in addition to Russian citizens holding $26 billion in Cypriot deposits, a figure greater than the total GDP of Cyprus. Al Jazeera reports from Moscow.
Along with the aggressive expansion in Greece, which helped Cyprus' banks to double the size of their loan books to around 72 billion euros in the last six years, Cyprus' banking sector has ballooned on the back of inflows of Russian money, which first started to arrive following the collapse of the Soviet Union in 1991.
The banking sector is now roughly eight times the size of the economy compared to 10 times for Iceland and over four times for Ireland before their crises. High interest rates, low taxes -- in particular a double taxation treaty with Russia -- and a shared Orthodox faith were all factors behind the influx of Russian money and people, which has seen the city of Limassol, the island's financial center, become known as "Lima grad".
Overall, deposits grew by nearly two thirds over a six year period to the end of 2012, according to data from the central bank in Cyprus. One Russian bank, Alfa Bank, estimates that $70 billion of illegal capital flight from Russia in the past two decades may have found its way to Cyprus. Cyprus was the largest recipient of Russian direct investment in 2011, totalling $121.6 billion out of $362 billion, according to Russian central bank data.
Despite Cyprus' banks exposure to Greece, deposits stayed largely stable last year, partly due to the belief that savers would not be hit and partly due to the high interest rates. In the past ten days, however, as rumors first surfaced about a hit on savers, an estimated 2 billion euros has been withdrawn by Russian depositors.
A depositor in Cyprus who put their money in the bank for rolling periods of less than a year would have been paid interest of almost 13 percent since the Greek crisis first erupted compared to just over three percent in German banks, according to Reuters calculations based on ECB data.
(Reuters) - As new President Nicos Anastasiades hesitated over an EU bailout that has wrecked Cyprus's offshore financial haven status, money was oozing out of his country's closed banks.
In banknotes at cash machines and exceptional transfers for "humanitarian supplies", large amounts of euros fled the east Mediterranean island before and after Cypriot lawmakers stunned Europe by rejecting a levy on all bank deposits.
EU negotiators knew something was wrong when the Central Bank of Cyprus requested more banknotes from the European Central Bank than the withdrawals it was reporting to Frankfurt implied were needed, an EU source familiar with the process said. "The amount the Cypriots mentioned... on a daily basis was much less than it was in reality," the source said.
Update - Latest from Moscow
(Reuters) - Russia signaled on Monday it would backstop the European Union's bailout of Cyprus despite anger that the weekend rescue deal would impose heavy losses on uninsured depositors, many of them Russian. President Vladimir Putin ordered his government to negotiate the restructuring of a bailout loan it granted to Cyprus in 2011 - having rejected Nicosia's request for easier terms in crisis talks last week.
Prime Minister Dmitry Medvedev - who ranks below Putin in the ruling hierarchy - earlier criticized the bailout deal that will inflict heavy losses on uninsured deposits of over 100,000 euros at the two main Cypriot banks.
"The stealing of what has already been stolen continues," Medvedev was quoted by news agencies as telling a meeting of government officials.