Newspaper article The Christian Science Monitor

How German Fears of Underwriting Russian Oligarchs Pushed Cyprus to Crisis

Newspaper article The Christian Science Monitor

How German Fears of Underwriting Russian Oligarchs Pushed Cyprus to Crisis

Article excerpt

Could the tiny economy of Mediterranean Cyprus, in urgent need of a bailout package, pull the whole eurozone back into crisis?

The answer, it became clear in the past few days, is yes. And the responsibility lies with the eurozones strongest economy, Germany.

For months, eurozone finance ministers have been debating how to help Cyprus, whose banks, exposed to large amounts of bad Greek debt, are in dire need of recapitalization. Cyprus is the fourth eurozone country to apply for financial aid from the European Union, the European Central Bank (ECB), and the International Monetary Fund (IMF), after Greece, Portugal, and Ireland.

It is also by far the smallest, and the amounts needed to keep it afloat are relatively modest, around 10 billion euros ($13 billion). So, late last week the ministers at a meeting in Brussels finally decided on a bailout package.

But for the first time, at the insistence of the German government, private account holders were being asked to shoulder a part of that bailout, around 5.8 billion euros ($7.5 billion), through a special levy on their savings.

The German taxpayer is willing to help Cyprus, says Michael Fuchs, a member of Parliament for Chancellor Angela Merkels Christian Democrats. But the Cypriots have to help themselves and pay a tax on their deposits.

An ashen-faced Nicos Anastasiades, president of Cyprus, told his fellow countrymen in a televised statement that it was either this deal or state bankruptcy. Under the deal, people with more than 100,000 euros in their accounts would have to pay a 9.9 percent tax, while people with less than that would pay 6.7 percent.

Cypriots' reactions were shocked and angry, the more so when they realized that over the weekend accounts had been frozen and transactions were impossible. Banks were closed today for a national holiday and officials said they would remain closed until Thursday to prevent panic reactions amongst customers.

Today, the Cypriot parliament was meant to approve the bailout deal. The vote was postponed to Tuesday though when it became clear that President Anastasiades would face defeat. …

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