17 March 2013

Schäuble: Cyprus must do its bit

The Cypriot business model simply does not work, declared Wolfgang Schäuble. "We will help Cyprus to solve its problems, but we will not help it so that it can carry on as before."

The German government has noted with regret the decision of the Cypriot parliament to reject the financial assistance programme. It was Cyprus that requested the programme, after all, said Wolfgang Schäuble. At the weekend the Eurogroup agreed on the main points of a programme to stabilise Cyprus’ financial sector, consolidate the country’s budget and press ahead with structural reforms. "Since autumn 2011 Cyprus has had no real access to the financial markets", said Wolfgang Schäuble. The rating agencies have downgraded the country to a bargain basement, and the country’s two main banks are insolvent. "That is nobody’s fault but Cyprus’ – this business model simply doesn’t work", stressed Wolfgang Schäuble. Somebody ought to explain that to the people of Cyprus.

The two main Cypriot banks are only operational thanks to emergency liquidity provided by the European Central Bank (ECB). "The ECB has made it quite clear that this cannot be continued without an assistance programme for Cyprus", Wolfgang Schäuble continued.

"Cyprus’ problem is that this small country has about €70 billion invested in its banks. Obviously most of these investors have chosen to invest their money in Cyprus because of lower taxes and possibly also because of other prevailing conditions", continued the Federal Finance Minister.

Investors who choose to put their money in countries where they pay less tax and might well be subject to fewer controls must realise that they bear the risk when the banks in this country become insolvent, stressed the Federal Finance Minister. 

"We cannot finance this model with the money of tax-payers in other Member States of the eurozone. This is not economically sustainable. And that is why Cyprus will have to accept the same conditions as other countries", underlined the Federal Finance Minister. "There is no way round it. If we want to solve the crisis, we will have to fight the root causes."

Full press release

© Bundesregierung