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The question of whether the government in Nicosia should be allowed to bolster its ailing banks with more than €17 billion ($22.7 billion) from Europe's bailout funds is dividing the eurozone, causing uncertainty in international markets and adding to the woes of the coalition government of Chancellor Angela Merkel, made up of her centre-right Christian Democratic Union (CDU), its Bavarian sister party, the Christian Social Union (CSU), and the business-friendly Free Democratic Party (FDP). Now that the centre-left Social Democratic Party (SPD) and the Green Party have announced their opposition to the plan, Merkel's coalition could for the first time fail to muster a parliamentary majority on an important decision relating to the euro crisis.
The financial woes of Cyprus are a thorny issue for the German government, the mood in global financial marks and, most of all, for Europe's bailout policy. Ever since last fall, it has been clear that an aid programme for the country would also benefit Russian oligarchs who have deposited billions in assets from dubious sources on the Mediterranean island.
The euro rescuers face a dilemma. On the one hand, they want to prevent the country from going bankrupt. On the other hand, they lack the support of a majority of Member States for an aid programme that would mostly benefit rich Russian tax fugitives.
The tricky situation is prompting European leaders to do what they always do when a crisis comes to a head: play for time. They want Nicosia to satisfy additional conditions in the fight against tax dodgers and economic criminals. At the same time, Brussels is hoping that current President Dmitris Christofias will be ousted in the February election
The Cypriot government stresses that upon joining the European Union in 2004, the country adopted all regulations and laws to fight money laundering, as well as creating new government agencies. Independent auditing institutes and international organisations have given Cyprus their seals of approval again and again, and the parliament has also approved the measures called for by the "troika", made up of the European Commission, the European Central Bank and the International Monetary Fund.