Cyprus bringing Europe to ‘edge of what’s possible’, says Merkel

Chancellor Angela Merkel let off steam over Cyprus yesterday, telling her backbenchers the island’s politicians had brought Europe to the “edge of what’s possible”.

Dr Merkel told a closed-door meeting of her Christian Democratic Union (CDU) she wanted Cyprus to remain in the euro zone, while her parliamentary party head warned that Cyprus was “playing with fire”.

“I don’t want that it comes to a crash,” she told backbenchers, before complaining that Cypriot politicians had yet to realise that its over-sized banking industry model is history.

The German leader vowed not to yield on the principle of a Cypriot contribution to its bailout programme because, she said, doing so would “put the whole thing at risk”.

Finance minister Wolfgang Schäuble warned Cyprus to steer away from a looming bankruptcy – likely if the European Central Bank makes good on its threat to withdraw emergency bank funding on Monday. However, the 70-year-old finance minister suggested the euro zone was no longer as vulnerable as it once was. "The crisis in Cyprus has not had measurable effect on the interest rates, for instance in Spain or Portugal," he told the Bild tabloid.

Market stability
"It seems the financial markets recognise that the euro zone is now considerably better prepared for turbulence."

Germany’s hard line on Cyprus is reflected across almost the entire political spectrum. Peer Steinbrück, the Social Democrat (SPD) hoping to oust Angela Merkel in September, said the bank levy agreed last week was a “mistake”, but said it was up to Cyprus to raise its €5.8 billion contribution for its rescue fund.

Berlin backed an International Monetary Fund demand for a contribution from Cypriot bank depositors to the island’s rescue programme. This was justified, Berlin says, given how Cypriot banks fund themselves largely through deposits – including a considerable non-residential component.

The Berlin/IMF plan, only to levy deposits over €100,000 at a higher rate than finally agreed was, they say, rejected by the Cypriot president.

Berlin officials have dismissed the latest reported proposals from Nicosia, to draw on pension funds for financing, saying the idea was rejected during negotiations. “We’ve been negotiating with Cyprus since June, so nothing surprises us anymore.”