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25th May 2019

Germany and ECB blame each other for Cyprus levy

  • German finance minister Schaeuble (r) talking to the Irish minister Noonan (c) and IMF chief Lagarde (l) during the Eurogroup meeting on Cyprus (Photo: Council of European Union)

German finance minister Wolfgang Schaeuble and European Central Bank board member Joerg Asmussen during parallel events in Berlin on Monday (18 March) tried to blame each other for an unprecedented eurozone bailout deal demanding small savers in Cyprus to take losses on their bank deposits.

"The levy on deposits under €100,000 was not an invention of the German government," Schaeuble said during a conference on taxation.

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He insisted that the "configuration" he and the International Monetary Fund were defending was to tax only deposits above €100,000 - to a much higher rate than what was finally agreed.

"The figures we have come up with are at the lower limit. If another configuration was chosen, touching only deposits above €100,000, the result would have been different and we would not have had these problems," Schaeuble said.

Cypriot bank customers over the weekend flocked to ATM machines to withdraw their money after news about the bailout terms reached the country.

Schaeuble defended the deal however as being in line with EU law, even though deposits under €100,000 should be fully guaranteed.

"Of course deposits of up to €100,000 are guaranteed, but the state has to be solvent to do so," Schaeuble said, noting that the Mediterranean island has been "practically cut off from financial markets."

On Sunday in an interview aired on public tv ARD, Schaeuble directly blamed the European Central Bank, the European Commission and the Cypriot government for involving tax small savers.

"Those who did not want a bail-in were the Cypriot government, also the European Commission and the ECB, they decided on this solution and they now must explain this to the Cypriot people," Schaeuble said.

ECB board member Joerg Asmussen, a former deputy finance minister in Germany and member of the Social-Democratic opposition party, meanwhile rejected Schaeuble's accusations.

Speaking at a parallel event on Monday in Berlin, Asmussen said: "In the last days it was not the ECB that pushed for this special structure that was chosen, it was the result of the negotiations in Brussels. Yes, we provided technical input, as always, but we didn’t insist on this structure."

He said the government in Cyprus is free to adjust how much small savers have to pay in comparison to wealthier bank customers, as long as the overall contribution (€5.8 billion) stays the same.

The Cypriot government is currently considering a new model on how to divide the tax burden among small savers and richer ones, with a key parliament vote delayed for until Tuesday and banks closed for the rest of the week in order to prevent a bank run.

Asmussen also warned that panic from Cyprus could spread to other eurozone countries "that are currently trying to end their programmes, namely Ireland and Portugal."

"One should not, through the wrong actions in Cyprus, put in risk what has been achieved at high political and financial risk in the eurozone in recent years," Asmussen said.

According to the Wall Street Journal, Asmussen was the one who in the early hours of Saturday threatened to cut off Cyprus' two largest banks from the ECB's emergency funding if a deal was not achieved.

"Cypriot banks have access to emergency liquidity of the Cypriot central bank, in line with rules of the eurozone. All Cypriot banks are supplied with emergency liquidity," Asmussen noted on Monday.

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