Tuesday

21st Aug 2018

Analysis

Cyprus showcases Germany's clumsy leadership in Europe

The Cyprus bailout fiasco is yet another example of Germany's clumsy leadership and image problem in Europe.

It was only last month that the German President, Joachim Gauck, made an attempt to reassure people in southern countries that Germany does not want to rule Europe by "diktat."

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And yet fresh images from Cyprus show protesters just as outraged about the alleged German diktat as Greek, Spanish or Portuguese demonstrators were over the past few months and years.

"Merkel and Schaeuble go home" read one banner in front of the parliament in Nicosia. Cypriot officials spoke of a "bank robbery," of German bullying, of the worst night since the island was invaded by the Turkish army in 1974.

Was it all really Germany's fault?

A cacophony of statements in Berlin, trying to shift the blame for the unprecedented raid on bank deposits, did not help matters in any case.

It may be that Wolfgang Schaeuble, the German finance minister, is right. Perhaps during that long night of bailout negotiations, the Cypriot President did insist that wealthy Russians with Cypriot bank accounts should be spared as much as possible. Even if it meant taking more money from small depositors. And even if it sets a dangerous precedent for other eurozone countries.

In the end, Schaeuble, as well as the rest of eurozone finance ministers and top officials from the European Commission, the European Central Bank (ECB) and the International Monetary Fund all agreed to the terms of this bailout.

But by Monday, nobody wanted to take responsibility for the "one-off" levy on small depositors.

Schaeuble blamed the Cypriots, the ECB and the commission. The ECB said it was not its idea. The Cypriots blamed everyone else.

A later snap Eurogroup conference call merely said it is up to the Cypriot government to decide how it spreads the pain among bank customers, as long as it gets the overall €5.8 billion from its banks.

For his part, Carsten Brzeski, a senior economist at ING bank, told this website: "I don't know how this happened, maybe some people fell asleep. There is a clear flaw - not exempting the small savers, which can lead to contagion in other countries."

He cautioned against blaming it all on Germany, however.

"Yes, they are clumsy. But it is also because countries still expect money to come with no strings attached. To some extent, Germans are just the messengers of misery, I wonder if it is not too easy to hide behind them," Brzeski added.

Image problem

EU diplomats in Brussels and Berlin shared the view that Germany is not running the show alone, despite the fact it is often said to do so.

"If the EU was really run by just one country, it would fall apart," one diplomat told EUobserver.

"But there is a risk that the EU will suffer because of this perception, of being dominated by Germany," the source added.

It is true that Germany's negotiation style is often a "take-it-or-leave-it" one, especially given its "complex federal model," which needs to take into account an unpredictable parliament and a powerful Constitutional Court, another source said.

But that does not mean that Germany always gets what it wants.

"Germany seems to be a leader by default because the others are not leading - France and the UK are doing relatively little in that respect. But there were very important concessions Germans had to accept - like the eurozone bailout fund," said Constanze Stelzenmueller from the German Marshall Fund, a Berlin-based think tank.

She added that the Baltic countries, which have gone through very tough austerity programmes and are now in a better economic shape, also "sound more German than the Germans" and are on Merkel's side on economic policies.

"I see Germany as a reluctant leader on the north-south divide," Stelzenmueller said.

Meanwhile, with elections coming up in September, Merkel's euro-crisis management is being challenged not only abroad, but increasingly on the domestic political scene.

The Social-Democratic opposition is now busy blaming Schaeuble for the Cyprus fiasco, although it was they who asked for a ruthless stance on money laundering and threatened to veto the bailout in the Bundestag.

"The parliament is basically deadlocked until elections," said Ulrike Guerot from the European Council on Foreign Relations in Berlin.

"Everything depends on the election result. If the current coalition stays, the muddling through will continue - perhaps with a little more help to the south. If there will be a grand coalition, it may be more progressive - the SPD included debt mutualisation in its election platform," she predicted.

Cyprus rejects bailout deal

The eurozone plunged into uncertainty on Tuesday after the Cypriot parliament rejected its EU bailout plan by an overwhelming majority.

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