Bailout Doubts Merkel Opponent Sets Conditions for Cyprus Aid

Cyprus is badly in need of aid, but skepticism in Berlin appears to be growing. Chancellor Merkel's opponent in this year's election, Peer Steinbrück, has set a number of conditions that must be met before his party will support a bailout. There is a growing number of rebels in Merkel's camp as well.
SPD chancellor candidate Peer Steinbrück is wary of assisting Cyprus.

SPD chancellor candidate Peer Steinbrück is wary of assisting Cyprus.

Foto: dapd

Germany's opposition Social Democrats (SPD) have once again signalled that they are unwilling to simply rubberstamp an emergency aid package for ailing euro-zone member Cyprus. The party is demanding that several conditions be met before it grants its approval for the deal in German parliament.

In an interview with SPIEGEL ONLINE, Peer Steinbrück , the SPD candidate for the Chancellery in this year's election, said that his party would like to see Cyprus' "bloated" banking industry, which holds assets many times greater than the country's annual gross domestic product, be consolidated and "one or another financial institute be liquidated."

He is also demanding that Nicosia do more to combat money laundering and modify its tax laws to reduce the country's attractiveness as a tax oasis . Finally, Steinbrück has demanded that Cyprus join the euro-zone plan to institute a financial transaction tax.

"The chancellor needs to address these criteria in a timely manner," Steinbrück said. "Our approval of the aid measures hinges on her reaction."

The SPD's skepticism of a Cyprus bailout  from the European Stability Mechanism (ESM), the euro zone's permanent rescue fund, is not new. But the concrete list provided by Steinbrück makes the party's ultimate approval all the more doubtful. And given widespread concerns within Chancellor Angela Merkel's coalition about providing emergency aid to Cyprus, a Berlin veto is a distinct possibility.

Systemically Relevant?

In votes on euro-zone bailout packages last year, lawmakers belonging to Merkel's coalition showed a decreasing willingness to back her support for euro-zone bailouts, making SPD support at times critical. Cyprus' problems have generated even more skepticism among Merkel's conservatives and her coalition partners, the business-friendly Free Democratic Party (FDP).

Michael Fuchs, a parliamentarian with Merkel's Christian Democrats and a party economics expert, told SPIEGEL that he would prefer to allow Cyprus to slide into insolvency. "I don't see that Cyprus is systemically relevant, and only in that case is the ESM allowed to help," Fuchs said.

Michael Meister, another senior conservative in parliament, said: "If Cyprus can make huge foreign investments in Russia, then it is not clear to me today why German taxpayers should save the country."

Many in Germany and elsewhere in Europe are particularly concerned about the amount of money Russian oligarchs have deposited in Cypriot banks. There is widespread concern that a bailout of banks in the country would primarily benefit rich Russians. Indeed, that and worries that the country is a center for money laundering have increased unwillingness to help.

Even German Finance Minister Wolfgang Schäuble  has indicated that he does not believe that Cyprus is systemically relevant. He was joined over the weekend by Rainer Brüderle, lead candidate for the FDP in this year's election. "We are united with our European partners, but there is no clearly agreed upon procedure for financial aid from the European Stability Mechanism that applies to Cyprus," Brüderle told the German daily Die Welt over the weekend.

Time for the Truth

Still, Steinbrück is unwilling to go quite that far. He warned in the interview with SPIEGEL ONLINE that a Cyprus euro-zone exit could send exactly the wrong signal at a time when the euro crisis appears to have, temporarily at least, lost its teeth.

"One shouldn't frivolously speculate about (an exit)," he said. "European Central Bank head Mario Draghi and European leaders have clearly signalled to the markets that the currency union will stay together. If someone now gives the impression that … it is possible for a country to leave the euro, then a fundamental message will have been contradicted."

Steinbrück was critical of Merkel for what he indicated was a lack of honesty in the euro crisis. He said that Berlin must finally tell German voters that the euro crisis is ultimately going to cost Germany money. "Angela Merkel, who at the beginning didn't want to give Greece a single cent, must finally tell people the truth," he said.

The SPD chancellor candidate also declined to join the growing optimism that the euro crisis may be fading into the background. "There are indeed bright spots. Ignoring them would be silly," he said. "But I am wary of predicting that we have seen the worst."

With reporting by Veit Medick and Roland Nelles