Tuesday

5th Dec 2023

Analysis

German musings: Is Cyprus too small for a bailout?

  • (Photo: Domiriel)

German politicians have a jaundiced view of Cyprus. Apart from associating it with money laundering and tax dumping, they are now wondering whether it is big enough to be worth bailing out.

The new catchphase is "systemically relevant" or whether a country's financial problems are large enough to pose a risk to the eurozone as a whole.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

"Negotiating tactics", say EU diplomats. "Legal precondition," counters the German government. According to the legal base governing the eurozone bailout fund (ESM), any bailout request is to be assessed for "the existence of a risk to the financial stability of the euro area as a whole or of its member states."

The European Central Bank's position is that even if in normal times, a tiny country like Cyprus would not pose any "systemic" risk to the eurozone, the opposite could now be the case. Greece, barely stabilised after a long delay last year, could also face new troubles as the Cypriot banking system is mostly active in Greece.

If allowed to go bust, so the thinking goes in the ECB, Cyprus could become Europe's new Lehman Brothers - the bankrupt investment bank that collapsed at the outset of the financial crisis in 2008.

The German government is less convinced this is the case. The government is not advocating a Cyprus exit from the euro, says a German source. But the case has to be rock solid for it to pass through a hostile parliament, where the opposition and backbenchers in Chancellor Merkel's coalition have already threatened to derail it.

"There is a situation here that is different from the rest of the [bailout] programmes that passed through the Bundestag so far: it's the upcoming elections in September. It was always important to make a very good case, but now even more so because the Social Democrats are threatening to derail it," the source said.

The suspicion that Cyprus is a tax haven where dodgy Russian oligarchs hide their wealth makes it an even harder case to sell to the Bundestag. A thorough review by the troika inspectors - EU commission, ECB and International Monetary Fund - of these matters is just as important as ensuring the country will pay back its debt in the next few years.

Contributions from Russia, but also the UK, Lebanon or Israel would be "most welcome," says Berlin. Russian Prime Minister Dmitry Medvedev said last week in Davos he was "open" to the idea of extending the repayment deadlines for a €2.5 billion bailout Cyprus already received from Moscow. This would help lower the country's debt, which is to reach almost 170 percent of GDP were it to get the suggested bailout of €17 billion.

"President Putin assured me that the Russian Federation is ready to contribute along with the European Union in loan deal for Cyprus," outgoing Cypriot president Christofias said Wednesday in a press conference.

The Communist leader, who called Putin an "old friend", is stepping down next month at the end of his second term. Christofias has been one of the reasons the Cypriot bailout is being delayed. He is refusing to agree to any privatisations in exchange for the eurozone loans.

Eurozone finance ministers are likely to agree on a deal in March, after presidential elections take place on 17 and 24 February. But that will be only the first step before seeking parliamentary approval in Germany. And the Bundestag may still consider that Cyprus is too small and not 'clean' enough to be worth bailing out.

Germany and ECB clash over Cyprus

The European Central Bank is at odds with Germany's finance minister over the consequences of not bailing out Cyprus and its wider implications for the eurozone.

Merkel warns Cyprus not to expect special treatment

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

EU public procurement reform 'ineffective', find auditors

The EU Commission reformed procurement directives to make bids more attractive (and competitive), but the reform has failed, say auditors. Procedures now take longer, and the number of direct awards and individual tenders has increased over the past decade.

Analysis

What are the big money debates at COP28 UN climate summit?

The most critical UN climate conference (COP28) ever will run from Thursday to mid-December — with talks on climate commitments and climate finance expected to determine the success of this year's summit.

Latest News

  1. Can Green Deal survive the 2024 European election?
  2. Protecting workers' rights throughout the AI revolution
  3. Russia, the West, and the geopolitical 'touch-move rule'
  4. Afghanistan is a 'forever emergency,' says UN head
  5. EU public procurement reform 'ineffective', find auditors
  6. COP28 warned over-relying on carbon capture costs €27 trillion
  7. Optimising Alzheimer's disease health care pathways across Europe
  8. Georgian far-right leader laughs off potential EU sanctions

Stakeholders' Highlights

  1. Nordic Council of MinistersArtist Jessie Kleemann at Nordic pavilion during UN climate summit COP28
  2. Nordic Council of MinistersCOP28: Gathering Nordic and global experts to put food and health on the agenda
  3. Friedrich Naumann FoundationPoems of Liberty – Call for Submission “Human Rights in Inhume War”: 250€ honorary fee for selected poems
  4. World BankWorld Bank report: How to create a future where the rewards of technology benefit all levels of society?
  5. Georgia Ministry of Foreign AffairsThis autumn Europalia arts festival is all about GEORGIA!
  6. UNOPSFostering health system resilience in fragile and conflict-affected countries

Stakeholders' Highlights

  1. European Citizen's InitiativeThe European Commission launches the ‘ImagineEU’ competition for secondary school students in the EU.
  2. Nordic Council of MinistersThe Nordic Region is stepping up its efforts to reduce food waste
  3. UNOPSUNOPS begins works under EU-funded project to repair schools in Ukraine
  4. Georgia Ministry of Foreign AffairsGeorgia effectively prevents sanctions evasion against Russia – confirm EU, UK, USA
  5. Nordic Council of MinistersGlobal interest in the new Nordic Nutrition Recommendations – here are the speakers for the launch
  6. Nordic Council of Ministers20 June: Launch of the new Nordic Nutrition Recommendations

Join EUobserver

Support quality EU news

Join us