BERLIN – Germany has warned Cyprus that the European Central Bank (ECB) will pull the plug on its two largest banks in the absence of a bailout programme and said the terms of the rescue will not change.
German finance minister Wolfgang Schaeuble told the ZDF public broadcaster on Tuesday night (19 March) he "took note with regret" of the Cypriot parliament's rejection of the bailout deal, but insisted that the terms will stay the same.
Asked if the eurozone was willing to let Cyprus go bust, he answered: "Well, we are much more stable in the eurozone – we took measures to protect ourselves from the risks of contagion … but I don't want to have any of this."
He added: "It is a serious situation, but this cannot lead to a decision that makes absolutely no sense, to rescue a business model that has failed. Cyprus has a banking sector that is totally oversized and this made Cyprus insolvent. And nobody outside Cyprus is to blame for it."
He said the Cypriot government might think it can continue to attract big capital inflows with low taxes and lax legislation, but warned that taxpayers in other countries will not pay for it if it goes wrong.
The ECB is currently keeping the two largest banks in Cyprus on an emergency lifeline, even as their branches remain closed this week in an emergency bank holiday.
If the bailout cannot be agreed, Schaeuble warned that the ECB will pull the plug: "It won't last until June. It is a question of them being able to open at all. Without the money from the ECB they are insolvent."
Later on, in another interview with the ARD public broadcaster, he repeated the warning:
"The Cypriot state cannot fund itself on the markets. Its two largest banks are insolvent and are being kept afloat with emergency funding from the ECB, but only on the condition that there will be a long-term rescue programme. If this condition is no longer met, Cyprus will no longer be solvent and this is something Cypriot decision makers must know," he said.
For his part, Eurogroup chief and Dutch finance minister Jeroen Dijsselbloem said the EU offer for Cyprus still stands: "I confirm that the Eurogroup stands ready to assist Cyprus in its reform efforts and reiterate the position of the Eurogroup as I stated yesterday."
The ECB said it will keep up its emergency funding to Cypriot banks "within the existing rules."
But the Austrian ECB board member, Ewald Nowotny, told Cypriots not to expect free money.
"I believe one must expect from the Cypriots a realistic position, otherwise there is only the hope that somebody makes them a present, be it the Russians, be it the EU," he told the ORF public TV station on Tuesday.
"I would not place too much hope on that," he added.
The Cypriot parliament earlier on Tuesday rejected a €10 billion bailout deal, which included a controversial plan to take €5.8 billion from ordinary people's bank accounts in a one-off tax.
From: http://euobserver.com 20/03/2013