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24th Sep 2018

Merkel warns Cyprus not to expect special treatment

  • Merkel is not rushing to support a Cypriot bailout (Photo: World Economic Forum)

German Chancellor Angela Merkel on Wednesday (9 January) warned Cyprus it should not expect special treatment when negotiating the terms of its bailout, which she suggested would not be concluded anytime soon.

Speaking alongside Malta's Prime Minister Lawrence Gonzi, Merkel praised his country for having a financially sound policy and gave it as an example of stability despite the eurozone crisis.

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Both Malta and Cyprus are island nations and joined the euro together in 2008. But Merkel said no comparison should be drawn between the two: "One island is not the same as the other. Malta and Cyprus are very different."

Cyprus last year requested an EU bailout. Its banking sector was drained of cash after having had to bear losses on the Greek loans they made. A lenient tax regime and connections with oligarchs in Russia and Ukraine had boosted Cyprus' economy in the period before the financial crisis.

But now Germany and other northern European countries are insisting that no money should flow to a country suspected of money laundering.

When asked if Cyprus should believe it can receive EU money without any privatisations or measures to fight money laundering, Merkel said:

"There can be no special conditions for Cyprus because we have common rules in Europe that are valid for everyone."

Cypriot President Dimitris Christofias has so far resisted the conditions of the bailout, especially privatisation measure which are a no-go for the only Communist leader in the EU.

Nicosia had hoped to ink a deal at an upcoming meeting of eurozone finance ministers on 21 January, but the deadline is likely to slip beyond the February presidential elections in Cyprus.

Merkel seems to back this strategy. At the press conference, she said that talks with the troika (EU commission, European Central Bank and International Monetary Fund) are "by far not over yet."

Even if she were to suddenly favour a quick deal on Cyprus - which she has not been so far - the Socialist opposition just signalled that it would veto the bailout request which has to be approved by the German parliament.

Merkel has had to rely on votes from the opposition for all the recent bailout-linked measures - for instance changes to the Greek programme - because recalcitrant backbenchers in her own coalition have deprived her of the symbolically important "chancellor majority."

Where should the money come from?

As for the Maltese Prime Minister, he had only one piece of advice for Cyprus: "Privatisation was good for us, it reduced our costs, it increased our competitiveness. If it makes sense for Cyprus, they should do it."

Germany insists on privatisation revenues to be used for part of the bailout. There has been speculation that income from the recently found gas reserves off the Cypriot coast could also be drawn upon to keep the overall debt at sustainable levels.

The IMF, on the other hand, wants to keep the bailout off the Cypriot state's books so that its debt does not increase at all, Handelsblatt reports.

An agreement last year on the eurozone bailout fund to pump money directly into banks was reached only under a German condition: that a eurozone-wide banking supervisor is set up first.

But work on the supervisor - within the European Central Bank - is still ongoing and would not be ready by end February or March when a Cypriot bailout could be agreed, a German source told this website.

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