GERMAN Chancellor Angela Merkel said yesterday there could be no special bailout conditions for Cyprus that did not include the need for economic reforms such as privatisations, which have been ruled out by President Demetris Christofias.
At the same time, a senior member of Merkel’s centre-right coalition said the German parliament was unlikely to back financial aid for Cyprus at the present time due to concerns about transparency.
Merkel, who is expected on the island tomorrow for a gathering of European Union conservative parties, said yesterday there could be no special bailout conditions for Cyprus that did not include the need for economic reforms such as privatisations.
"We agree it is important that the troika should talk with Cyprus and that there can be no special conditions for Cyprus because we have common rules in Europe," Merkel told a news conference. "We are far from the end of the talks."
She was speaking after talks with visiting Maltese Prime Minister Lawrence Gonzi, who said that "privatisations were one of the key elements that allowed Malta to move forward" and make its economy more competitive.
Christofias has said that he would not agree to privatisations but it might not be up to him in the end. German newspaper Handelsblatt reported yesterday that Cyprus can only expect a bailout in early March after the presidential election next month as eurozone finance ministers want to wait to work with Christofias’ successor.
"The incumbent Christofias categorically rejects the sale of state companies. Without privatisation revenues the country cannot be reformed," the paper quoted sources in Brussels as saying.
Earlier before Merkel’s comments, Rainer Bruederle of the Free Democrats (FDP), junior partner in Merkel's coalition, told Bild newspaper: “There are many question marks regarding Cyprus. On the basis of what we know so far I do not see a majority (in the lower house Bundestag) for financial aid. If the impression exists that German taxpayers are to be liable for dirty money, the aid would not be manageable or acceptable.” This was an apparent reference to concerns over Cyprus' popularity as a tax haven for wealthy Russians.
Further complicating the outlook for the island, a senior member of Germany's main opposition Social Democrats (SPD) was quoted yesterday as saying his party would not support financial aid for Cyprus.
"As matters stand, I cannot imagine that German taxpayers save Cypriot banks whose business model is based on facilitating tax evasion," SPD chairman Sigmar Gabriel told the Sueddeutsche Zeitung daily.
The centre-left SPD, which hopes to oust conservative Merkel in elections due in September, has taken a hard line against tax evasion, including by wealthy Germans who squirrel away cash in Swiss bank accounts.
Merkel would need SPD votes to secure German parliamentary backing for a Cypriot bailout.
"If Mrs Merkel wants SPD support for a Cyprus bailout package she will need good reasons. At present I do not see them," said Gabriel, whose party is lagging well behind Merkel's Christian Democrats in opinion polls.
Sueddeutsche Zeitung quoted German government sources as saying Merkel would only seek parliamentary backing for a Cypriot bailout if Nicosia embraces "radical reforms.”
Government spokesman Stefanos Stefanou rejected the money laundering allegations later yesterday, describing the attacks as unfair.
The government has repeatedly said it fully conforms with international rules against money laundering.
Asked if the government was concerned about the possibility of the attacks being part of a plan to force foreign capital to leave the country – a belief held by many on the island -- Stefanou said this should be everyone’s concern.
“Cyprus is a financial and investment centre and this is exactly the reason we always defend Cyprus, its economy and the procedures we follow,” Stefanou said. “We are not seeking the expediencies, we are defending Cyprus from the attacks with the arguments that we have.”