Russian President Vladimir Putin ordered his government on Monday to study restructuring a 2.5-billion-euro loan to Cyprus after a bailout was agreed in Brussels to rescue the island from financial ruin.
Moscow -- whose banks risk losing out in the deposit discount or "haircut" that big depositors are to suffer under the bailout deal -- extended the loan to Cyprus in 2011 and it is scheduled to be paid back by 2016.
Putin instructed "the government and the Russian ministry of finance to work with their partners on the issue of restructuring the loan previously issued to Cyprus," news agencies quoted Putin spokesman Dmitry Peskov as saying.
The suggestion will come as good news to European officials who had earlier Monday urged Nicosia to continue its negotiations with Moscow over the loan after having failed to get a repayment deferral last week.
Putin did not specify what the terms of the "restructuring" might be.
But he sounded encouraging with respect to efforts aimed at securing a 10-billion-euro aid package from the European Union (EU) and International Monetary Fund (IMF), even though the overall plan could hit Russians with substantial deposits in Cyprus.
"Considering the decisions adopted by the Eurogroup, Putin considers it possible to support the efforts of the president of Cyprus and the European Commission aimed at overcoming the crisis in the banking system of this island state," Peskov said.
Putin comments should ease fears from some European officials such as French Foreign Minister Laurent Fabius that Russia's reaction "could be harsh indeed."
The EU-IMF deal would include Russians who have some $31 billion parked in Cypriot corporate and private accounts, and who stand to lose from a haircut on deposits of more than 100,000 euros in Cyprus's biggest bank, the Bank of Cyprus.
Moscow's Alfa Bank investment house said that "a bigger burden is to be placed on bigger, mostly Russian deposits under the deal."
Russia reacted angrily to an original plan that called for a 10-percent levy on deposits in Cyprus of more than 100,000 euros. That plan was rejected by the Cypriot parliament.
European negotiators and Cypriot officials have still not worked out the final details on how painful the cut to the larger holdings in Cyprus's biggest bank will be.
A Cypriot government spokesman said that the loss to large holdings in the Bank of Cyprus will be "around 30 percent".
"Plan B is no better for Russian companies than the original one. In fact, it is probable worse," said IFC Metropol analyst Mark Rubenstein.
"But this is only true for businesses that conducted their holdings through Cyprus. The situation there will be very unpleasant."
Some Russian officials such as First Deputy Prime Minister Igor Shuvalov have suggested that the silver lining of the haircut would be the return to Russia of money that had been hiding in offshore zones.
"What is happening is a good signal to those who are ready to return their money under Russian jurisdiction, into Russian banks," Shuvalov said on Monday.
"We have very stable banks," he said.
But several analysts said this was unlikely because the rich Russian would instead simply take their money to more distant offshore zones such the British Virgin Islands.
Analysts stressed that the consequences would be minimal for the Russian economy as long as Cyprus does not institute currency controls limiting the amount of money leaving its banks.
Renaissance Capital's chief economist Ivan Tchakarov estimated that direct losses from the haircut would account for just 0.15 percent of Russia's gross domestic product (GDP).
But "the cost could rise to non-trivial levels of 2.0 percent of GDP if Cyprus imposed capital controls," Tchakarov noted.