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Germany: Cyprus must finance EU bailout

It was up to the Cyprus government how it chooses to finance the terms of a tough EU bailout deal, which should have a "calming effect" on the crisis-wracked eurozone, Germany said Monday.

Germany: Cyprus must finance EU bailout
Photo: DPA

“How the country makes its contribution, how it makes the payments, is up to the Cyprus government,” government spokesman Steffen Seibert said, as a finance ministry spokesman added the bailout would have a “largely calming effect” on the eurozone.

The European Central Bank (ECB) opened the door on Monday to possible amendments to a tough EU bailout deal for Cyprus, arguing that as long as the financing secure, it was up to the Cyprus government to decide how to raise it.

“It’s the Cyprus government’s adjustment programme, not the Troika’s or any other government’s,” Germany-based ECB executive board director Jörg Asmussen told a conference here.

The troika is the term used for international creditors, the European Union, the ECB and the International Monetary Fund.

“If Cyprus’s president wants to change something in the structure of the levy on bank deposits, that’s in his hands. He must simply make sure that the financing is intact,” Asmussen said.

Cyprus President Nico Anastasiades is currently seeking the backing of MPs for an EU bailout deal that slaps a tax on bank savings under harsh terms that have jolted global markets and raised fears of a new eurozone debt crisis.

Ahead of a parliamentary vote on the hugely unpopular measure on Monday afternoon, negotiators are seeking to soften the blow on small-time depositors, who have been stunned by the announcement that their savings will be skimmed.

As a condition for a desperately-needed €10 billion bailout for Cyprus, fellow eurozone countries and international creditors Saturday imposed a levy on all deposits in the island’s banks.

Deposits of more than €100,000 will be hit with a 9.9 percent charge, while under that threshold the levy drops to 6.75 percent. The proposal must still be passed by parliament.

Cyprus’s share of the financing of the deal is around €5.8 billion euros.

ECB board member Asmussen insisted it was Nicosia’s programme. “They must decide its parameters. It’s not as if the Troika was adamant about this particular structure,” Asmussen argued.

Cyprus is the fifth eurozone country to turn to its partners for aid, but the first where savers are being asked to foot part of the bill.

The deal sent European stock markets into a tailspin on Monday amid fears of a bank run in Cyprus.

Asmussen said the situation in Cyprus’s banking sector was such that “no easy, risk-free decision was possible.”

The situation in Cyprus was “unique,” he said when asked whether similar conditions could be imposed on other countries seeking a bailout.

AFP/jcw

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ECONOMY

German cabinet agrees record levels of new debt for 2021

The German government agreed Wednesday to take on record borrowing this year to weather the economic blow of the coronavirus pandemic.

German cabinet agrees record levels of new debt for 2021
Finance Minister Olaf Scholz. credit: dpa | Kay Nietfeld

In budget adjustments signed off by Chancellor Angela Merkel’s cabinet, Europe’s largest economy will borrow a total €240.2 billion in 2021, a third more than initially planned.

The adjusted budget, which will see Berlin break its taboo on new debt for the third year in a row, still has to be approved by parliament.

“We have decided to suspend the debt brake once again, and I think that’s justified,” Merkel told the Bundestag lower house, adding that the budget was “measured” despite “more insecurity” than usual.

“We are taking the right measures to manage the economic and financial effects of the pandemic,” added Finance Minister Olaf Scholz.

After maintaining a budget surplus for the last decade, the economic slump caused by the pandemic has forced Berlin to take on €370 billion in new debt in 2020 and 2021, with an extra €85.1 billion planned for 2022.

With the country facing a dangerous third wave and shutdown measures extended into April, Germany’s recovery has proved slower than expected this year.

Having originally planned to halt borrowing in 2022, the government is now aiming to return to its golden rule of fiscal discipline a year later, with only €8.3 billion of new debt in 2023.

The so-called “debt brake” is a rule enshrined in the constitution which forbids the government from borrowing more than 0.35 percent of gross domestic product (GDP) in a year.

READ ALSO: Merkel admits Easter coronavirus shutdown plan her ‘mistake alone’

Germany smashed the taboo in 2020 and 2021 as it scrambled to shield businesses and workers from the economic hit of the coronavirus.

The state has already paid out more than 114 billion euros of financial support to businesses since the beginning of the pandemic in the form of guaranteed loans, direct aid and shorter-hours work schemes.

Yet according to a report published by the German Economic Institute on Wednesday, the crisis has still cost the German economy 250 billion euros so far.

Extended restrictions

Hopes of a recovery this year have been dashed with entire sectors of the economy idled for months and the government revising down its 2021 growth forecast to three percent in January.

As a third wave of the pandemic tears through Europe, Germany extended shutdown measures by another several weeks at a marathon meeting between Merkel and state premiers on Monday.

Though plans for a strict five-day lockdown over Easter were scrapped Wednesday, businesses such as non-essential shops, leisure facilities and cultural venues will still remain largely closed until at least April 18.

In a report published Monday, the Bundesbank central bank predicted that restrictions would see economic output “contract markedly” in the first quarter of 2021.

The measures have also been met with growing frustration from business organisations, with the German Commerce Association warning that 120,000 shops could be forced to close if the measures continue to drag on.

The issue of taking on new debt, meanwhile, has also sparked heated political debate ahead of a September general election.

In January, Merkel’s chief of staff Helge Braun caused a major ruckus within his own CDU party when he suggested that the rule on fiscal discipline should be lifted for several years to come.

SEE ALSO: ‘We have finances well under control’: Germany takes on less debt than expected in 2020

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