BERLIN: German Chancellor Angela Merkel said yesterday that her country wants to find a solution for Cyprus but insisted there must be a plan to repair the tiny Mediterranean island’s bloated banking sector, and that it makes sense for holders of large bank deposits to chip in.
A bailout package, which in its original version would have taken a cut from every saver’s account, was rejected overwhelmingly Tuesday by the Cypriot Parliament. Merkel told reporters in Berlin that she regretted but respected that decision.
She said Germany will now wait to see what alternative proposal Cyprus offers to internationalcreditors to stave off economic collapse and examine that “with great respect” — but insisted that “it is important that Cyprus gets a sustainable banking sector in the future. The current banking sector is not sustainable.”
Merkel said that prospective bailout creditors like Germany have an obligation to ensure that there is a solution to a country’s problems when they offer help from their eurozone rescue fund.
Eurozone finance ministers have made it clear that they would like investors with bank deposits under 100,000 euros ($ 129,000) to be spared. “But investors above 100,000 euros should make a contribution to the Cypriot banking landscape being stabilized,” Merkel said, stressing that she still believes “the banking sector must make a contribution to Cypriot debt being sustainable.”
“Cyprus is our partner in the euro area and so we are obliged to find a solution together,” Merkel said.
Merkel will have to sell any deal to Germany’s Parliament.
Cyprus differs from previous eurozone bailouts in that there is little sympathy anywhere on Germany’s political spectrum for the plight of the country’s banks, which hold huge deposits from foreigners, particularly Russians. Both government and opposition leaders, who have criticized Merkel on previous occasions for an excessive emphasis on austerity and refusal to contemplate debt-pooling, argue that the Cypriot model of attracting wealthy foreign investors is bust.