German politicians including Angela Merkel take hard line on Cyprus, which needs estimated €17bn to recapitalise its banks
Cyprus’s hopes of agreeing a eurozone bailout were thrown into fresh confusion on Wednesday as German politicians from across the spectrum warned that the aid package could be vetoed by the Bundestag.
Angela Merkel, the German chancellor, is taking a hard line on Cyprus, saying the country must agree to wideranging economic reforms and privatisations before she would support a bailout.
Negotiations between the Cyprus government and international lenders have stalled, with the Communist president, Dimitris Christofias, refusing to accept asset sales. Speaking in Berlin, Merkel also refused to concede ground over the issue.
“We agree it is important that the troika should talk with Cyprus and that there can be no special conditions for Cyprus because we have common rules in Europe,” Merkel said. “We are far from the end of the talks.”
Cyprus needs an estimated €17bn (£14bn) including around €11bn to recapitalise its banks which have suffered heavy losses through their exposure to Greece.
Rainer Brüderle of the German Free Democrats party, part of Merkel’s coalition, is concerned that a large slice of any aid deal could go to Russians who have laundered money through Cyprus. He believes that MPs in the Bundestag would reject a deal for Cyprus.
“Based on what we know now, I don’t see a [parliamentary] majority for financial aid,” Brüderle told the Bild newspaper. “If the impression exists that German taxpayers are to be liable for dirty money, the aid would not be manageable or acceptable.”
The opposition Social Democrats have publicly declared their concerns over a Cyprus aid deal. The SPD chairman, Sigmar Gabriel, said it was inconceivable that German taxpayers would “save Cypriot banks whose business model is based on facilitating tax evasion”.
Cyprus’s new central bank governor, Panicos Demetriades, is trying to mend the country’s reputation in Europe. On Monday he reportedly told eurozone ambassadors that an inaccurate impression had been created, and that there are more German shipping companies registered in Cyprus than Russian ones.
SPD insiders have suggested that the Cypriot bailout could be delayed until Christofias steps down next month. That could mean the talks drag into March, undermining recent claims that the worst of the eurozone crisis is over.