Merkel Confronts Growing Skepticism on Bailout Aid to Cyp

Chancellor Angela Merkel confronted a growing chorus of skepticism from inside and outside Germany’s coalition on bailout financing for Cyprus, possibly endangering her majority among lawmakers who will have to approve any aid.

Rainer Bruederle, the parliamentary leader for Merkel’s Free Democratic coalition partner, told Bild newspaper he sees no majority in the lower house as long as German taxpayers have the impression that they’re bolstering tax evaders. He echoed statements from opposition Social Democratic Chairman Sigmar Gabriel, who told Sueddeutsche Zeitung newspaper the SPD won’t support a Cyprus bailout in its current form.

“There are too many question marks surrounding Cyprus,” Bruederle told Bild in an interview yesterday. “From what is known currently, I don’t see a majority for financial aid.”

The roadblock to the latest bailout in the debt crisis could hamper euro-area finance ministers already squabbling with the International Monetary Fund on how to help the Mediterranean island nation. The package, which could match the size of Cyprus’s 18-billion-euro ($23.5 billion) economy, will have to keep the country afloat while assuaging northern European skeptics bracing for the fifth euro-region rescue program in three years.

Merkel signaled that a final decision on Cyprus could be held up. Euro finance ministers who had aimed to lock in a deal this month may delay it until March, after the country’s presidential election next month, Handelsblatt reported.

‘Long Way’

“There can’t be special conditions for Cyprus, we have the same rules throughout Europe,” Merkel said in Berlin yesterday after meeting with Maltese Prime Minister Lawrence Gonzi. “We’re a long way from the end of the talks.”

Cyprus’s government believes the nation’s debt will ultimately be sustainable, spokesman Stefanos Stefanou said yesterday in comments posted on the Cyprus government website.

Euro ministers are awaiting the results of next month’s presidential elections in Cyprus, after which President Demetris Christofias leaves office, according to Handelsblatt. Christofias has rejected proposals to sell off state assets.

Merkel will join European allies at a gathering of conservative party leaders in the Cypriot port city of Limassol tomorrow. She has no plans to meet members of the government, Steffen Seibert, Merkel’s chief spokesman, told reporters in Berlin yesterday.

Euro ministers are at loggerheads over Cyprus with the IMF, which wants Cypriot banks to be recapitalized directly from bailout funds, according to Handelsblatt. In Germany, SPD Chairman Gabriel was among German politicians attacking euro member state support of the Cypriot banks.

‘Tax Fraud’

“At this stage, I can’t imagine that German taxpayers will rescue Cypriot banks whose business models are based on abetting tax fraud,” Gabriel told Sueddeutsche Zeitung.

Still, Merkel allies said it’s too early to assess whether a Cyprus package could pass Germany’s lower house, or Bundestag. Hans Michelbach, a lawmaker from Merkel’s CSU Bavarian sister party, urged colleagues to withhold judgment while citing concerns about the Cypriot banks.

“My parliamentary colleagues may be jumping to conclusions somewhat,” Michelbach said in an interview. “On the face of it, we have our concerns given the intransparency of Cyprus banking, the scope of the aid request vis-a-vis annual GDP and the origin of many deposits. But we certainly do not have a position on the request at this time.”

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