Germany spars with ECB over Cyprus threat

BERLIN: Germany’s Finance Ministry says that Cyprus can only access international aid if it threatens the euro area’s stability, resisting European Central Bank warnings that the island economy might derail progress made in Europe.

Providing aid from the euro region’s financial backstops was linked to legal conditions that have to be respected, the Finance Ministry said yesterday in an e-mailed comment. That included the question of whether Cyprus was systemically relevant to the 17-nation euro area and its readiness to carry out an adjustment programme, the ministry said.

The German focus on Cyprus’ obligations contrasts with ECB Executive Board member Joerg Asmussen, who told Greek newspaper Kathimerini on Sunday that policy makers must realise Cyprus had the potential to cause damage beyond the size of its economy.

“If one simply looks at the size of the economy – it is something like 0.15% of euro area GDP – they may conclude that Cyprus is not systemically important,” Asmussen, a former deputy German finance minister, told Kathimerini in comments confirmed by the ECB. “In normal times, one may be tempted to agree.”

ECB president Mario Draghi pressed German Finance Minister Wolfgang Schaeuble to recognise that Cyprus and its banks were a risk for the euro region as a whole, Der Spiegel reported in this week’s edition, without saying how it got the information. –