German Chancellor Angela Merkel’s party will probably back aid for Cyprus from Europe’s rescue fund provided the island’s parliament finds a way to approve a bank-deposit tax, a senior Merkel party lawmaker said.
Michael Meister, the deputy parliamentary chairman of Merkel’s Christian Democratic Union, said in an interview in Berlin today that a “positive” outcome to the Cypriot parliament’s deliberations would probably lead his party to give a “green light” for aid from the European Stability Mechanism, or ESM.
A Cyprus vote for the deposit levy would lead the CDU to “empower Finance Minister Wolfgang Schaeuble to give Germany’s approval for a contract between the troika and the Cypriots on ESM help,” Meister said in the Bloomberg Television interview.
Cypriot lawmakers are due to vote on the rescue proposals later today in Nicosia, after Cypriot President Nicos Anastasiades warned Merkel in a call late yesterday that he may not be able to win passage, according to a Cypriot government official. Merkel told him he can only negotiate a rescue package with the so-called troika of the European Commission, the European Central Bank and the International Monetary Fund, a German government official said separately.
It’s up to the Cypriots to decide how to generate the 7 billion euros ($9 billion) required by structuring the deposit tax and other fiscal innovations, Meister said. Cyprus needs as much as 10 billion euros in ESM aid for a total rescue package of 17 billion euros, close to the 18 billion euros generated in gross domestic product in 2011.
Schaeuble will brief lawmakers from Germany’s three coalition parties on Cyprus today and in a special meeting called tomorrow, CDU Chief Whip Michael Grosse-Broemer told reporters. Caucus leaders will canvass for support for Cyprus as soon as the island’s parliament makes a decision on rescue proposals, Grosse-Broemer said.
Meister said implementing a deposit tax in Cyprus won’t spill over into a bank run in the euro area as the Cypriot bank system’s insolvency risks are unique to the island, stemming from an “over-banked” economy, and deposit guarantees would kick in for other states in the currency bloc, he said.
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