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ECONOMY

Cyprus: German politics and ‘envy’ hurt bailout

Cypriot officials are hitting back at Germany with charges that German domestic politics and "envy" over the island's role as a financial hub are damaging efforts to seal an EU bailout before the eurozone nation sinks into bankruptcy.

Cyprus: German politics and 'envy' hurt bailout
Photo: DPA

German politicians have criticized plans to bail out Cyprus, saying its banks are havens for tax evaders and money launderers.

Cyprus’s request for EU financial aid for its debt-ridden economy has been undermined by damaging allegations it is a laundromat for dirty Russian money as international lenders call for greater transparency.

“The issue is a political one because of the German elections,” a government source told news agency AFP on condition of anonymity.

Cyprus sought out aid last June. But suspicions over banking sector transparency and Nicosia’s reluctance to push through tougher reforms such as privatization have delayed the urgently needed bailout, leaving the country on the brink of bankruptcy.

“We are making sure we comply with all recommendations of the International Monetary Fund and the Eurogroup to ensure these allegations go away,” said the

government source, referring to money-laundering charges.

“Another reason is that countries would like to have a piece of our pie as a financial centre,” the source added.

Former finance minister Michalis Sarris said the money laundering issue keeps resurfacing because it is a “sexy topic” that sells in the German media and the election campaign in that country.

“Cyprus has to be above suspicion and do more than is necessary to demonstrate it is a reputable financial centre,” Sarris told AFP.

He said under a draft bailout agreement, international lenders called for more transparency and a timely exchange of data when other countries request tax information.

“The government should ask for specifics and take the necessary measures required.”

Nicosia is now on the counter-offensive on the issue of financial crime.

“It is obvious that behind the attacks against Cyprus there are vested interests. Those who attack Cyprus want to take its role as a serious, international, financial and investment centre,” government spokesman Stefanos Stefanou told reporters on Thursday.

He said Cyprus was the fourth largest investor in Russia and the second biggest in Ukraine.

Fed up with negative reports alleging Cyprus to be a haven for the ill-gotten gains of Russian oligarchs, the Cypriot parliament is launching a campaign to defend the island’s “clean” reputation on the European stage. And the government says it welcomes closer scrutiny of its financial sector.

“We are doing everything within our power for the implementation of all international recommendations. We disagree with allegations that there is non-implementation of laws and regulations,” said central bank official Michalis Stylianou.

Eurogroup finance ministers made no decision on a rescue package for Cyprus

at a meeting in Brussels on Monday because negotiations on bank recapitalization are continuing. They said a decision would most probably be taken in March.

Outgoing Eurogroup president Jean Claude Juncker said this wait will also provide time for “close monitoring of the anti-money laundering” framework and its implementation.

Cyprus says it has adopted more international standards and recommendations than many of its fellow eurozone colleagues.

A Deutsche Bank report on the Cyprus debt crisis issued last week said there was an “excessive focus” on money laundering.

“It is rather Cyprus’s status as an offshore tax haven with a relatively opaque banking sector heavily used by foreign depositors that is under scrutiny,” said the report, referring to non-resident deposits of €24 billion, or $32 billion, much of it from Russia.

Nicosia called for a bailout in June when its banks, hit by the EU-imposed writedown on Greek debt, needed financial assistance.

In a draft agreement with the EU and IMF, the amount for the banks was set at up to €10 billion as part of a total package which could reach €17.5 billion – matching the output of the island’s entire economy.

Although Cyprus has pushed through harsh austerity measures of around €1.2 billion in tax hikes and savings, fellow EU partners have called for more reforms.

AFP/mry

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ECONOMY

German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.

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With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.

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