The Eurozone, IMF and Germany's insistence to impose a harsh "bail-in" plan on Cypriot savers has backfired with "iron fist" Finance Minister Wolfgang Schaeuble not realising that he may have cast the first stone in the downfall of the euro simply to satisfy a personal ambition to punish Russian depositors.
Demonstrators in Spain were quick to realise that the 10% levy on all deposits in Cyprus in order to raise about 6 bln euros as part of a 17.5 bln euro bailout, could be imposed on them as well, while European Union leaders desperately tried to calm market jitters saying the problem was exclusive to Cyprus. But leading figures from across the German political spectrum criticised Europe's bailout deal on Monday, describing the plan as a major mistake.
Schaeuble, who represented Germany in the rescue talks in Brussels on Friday night, tried to deflect blame for the agreement, saying it was "not the creation" of the German government and that he was open to changes. However, he was cynical in his comments saying that Cyprus should not have the large banking sector it has today and suggested that his bone of contention was the low 10% corporate tax the island offers in order to lure Russian depositors and oligarchs.
The deal, that has shed serious doubts on the EU's pledge to safeguard savings of up to 100,000 euros after the Lehman collapse in 2008, sent the euro, stock markets and the bonds of southern euro zone members sharply lower on Monday morning. Amid the backlash, Cypriot authorities were considering changes to reduce the burden on smaller savers.
"Small savers cannot be made responsible for the debt crisis," Daniel Bahr, a member of the ruling Free Democrats (FDP) and health minister in Chancellor Angela Merkel's government, told Reuters. "Mr. Schaeuble is going to have to move on this."
Stanislaw Tillich and Volker Bouffier, influential premiers of the states of Saxony and Hesse and members of Merkel's Christian Democrats (CDU), both urged changes to the deal.
And opposition parties, who face a struggle to unseat the popular Merkel in a September election, were withering in their criticism.
Carsten Schneider, a budget policy expert for the Social Democrats (SPD), said the decision to hit savers with funds under 100,000 euros who would normally benefit from a deposit guarantee threatened to "undermine trust in the whole euro zone."
"They are creating uncertainty for all investors, even those in Germany," Schneider said on the sidelines of a conference in Berlin.
Juergen Trittin, parliamentary leader for the Greens, told German television: "Why don't we take 15% from those with lots of money and completely exclude those with deposits under 25,000 euros from the levy?"
Germany's lower house of parliament must approve the bailout deal for it to go ahead. Chancellor Merkel has a majority in the Bundestag but has counted on the support of the opposition in past bailout votes.
Speaking on Sunday evening on German public television, Schaeuble said he had been prepared to respect the deposit guarantee for accounts up to 100,000 euros, but had faced resistance from the Cypriot government, the European Commission and the European Central Bank.
ECB board member Joerg Asmussen, speaking in Berlin on Monday, appeared to contradict Schaeuble's account.
"I want to emphasise that it wasn't the ECB that pushed for this special structure of the contribution which has now been chosen. It was the result of negotiations in Brussels," he said.
"We provided technical help with the calculations, as always, but we didn't insist on this special structure."
Officials in Nicosia said the Cypriot government was now suggesting that savers with deposits up to 20,000 euros be exempted from the levy altogether. They added that Cyprus was "black mailedy" by German and Finnish counterparts who wanted to impose "ridiculously high" levies on large depositors ultimately forcing foreign savers to flee the country and shatter the islan's mainstay from financial services.
But it was unclear how it would fill the gap that would result from that move. German and European officials made clear that if changes were made, Cyprus would still have to come up with a 5.8 bln euro contribution from its banks for the bailout deal to work.
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