Business | Economy

Bailout to Cyprus comes with strings attached

Need to consolidate bloated banking sector and tackle money laundering, Germany’s Social Democrats say

  • Reuters
  • Published: 14:36 February 3, 2013
  • Gulf News

  • Image Credit: AP
  • Cyprus Finance Minister Vassos Shiarly said Russia is likely to contribute money to a rescue package that the cash-strapped country is trying to finalise with Eurozone partners.

Berlin: Germany’s opposition Social Democrats (SPD) will only back a bailout for Cyprus if Nicosia agrees to consolidate its banks among other conditions, the party’s challenger to Chancellor Angela Merkel was quoted as saying on Saturday.

“SPD agreement will only come under certain conditions,” Peer Steinbrueck, who takes on Merkel in September’s election, was quoted in Der Spiegel weekly as saying. Before any rescue deal, Cyprus would have to consolidate “its completely bloated banking sector” and wind up some institutions, the magazine quoted Steinbrueck as saying. In addition, the government in Nicosia must tackle money laundering, introduce a financial transaction tax and end what Steinbrueck described as “tax dumping”. Cyprus has the Eurozone’s lowest nominal corporate tax rate. “The chancellor should address these four criteria very quickly,” he said, according to Der Spiegel. “We will make our agreement to aid dependent on the reaction.”

Exposure to Greece

Cyprus, whose troubles stem from its banks’ exposure to crisis-hit Greece, sought aid from the European Union and International Monetary Fund last year. It is unclear when any rescue will be finalised and there is strong resistance in Germany, where media have made much of Cyprus’s status as a popular tax haven for wealthy Russians. Merkel needs the support of the centre-left SPD to get a deal through the Bundestag lower house. Until now, they have supported Merkel’s Eurozone policies but they have reservations about Cyprus due to concerns about money laundering.

Cyprus insists it conforms to international rules against money laundering. Steinbrueck, a former finance minister, has taken a tough line on tax evasion since being chosen as his party’s “chancellor candidate” a couple of months ago.

However, several members of Merkel’s own conservatives are also sceptical about granting aid to Cyprus. “I do not see that Cyprus is system-relevant and only in that case can the European Stability Mechanism (ESM) help,” said senior conservative lawmaker Michael Fuchs in Der Spiegel. Due to the resistance, Merkel’s government is trying to delay any decision on aid to Cyprus.

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