Rehn: Cyprus must act on money laundering

He noted that Peer Steinbruck - the German centre-left SPD party's candidate in autumn elections - told him "personally" on Tuesday he will oppose the bailout unless Cyprus cleans up its act.

"I believe we can address the concerns of the SPD ... [it] will agree to the Cyprus bailout in the end, if we find a compelling solution which is acceptable to the [German] taxpayer and which helps us to finally overcome the problem of money laundering," Rehn said.

The commissioner's remarks give the lie to Cypriot claims that money laundering and tax evasion are not part of EU negotiations on its potential €17 billion rescue.

The small island nation has a large offshore banking sector which is popular with Russian and Ukrainian businessmen.

It is also fighting proposals that its foreign creditors should suffer a "haircut" on their money on the model of the Greek bailout.

Under German law, the Bundestag has to approve any EU rescue deal.

But if the SPD and other bailout sceptics - the left-wing Die Linke party, the Greens and rebel MPs in Chancellor Angela Merkel's coalition - oppose the deal, the government will not get it through.

SPD chief Sigmar Gabriel on Wednesday also told press that Cyprus has not done enough to merit help.

Merkel herself on Thursday noted: "There can be no special conditions for Cyprus because we have common rules in Europe that are valid for everyone."