Euro zone finance ministers will let an independent commission examine charges of money laundering in Cyprus. Only then, they say, will they begin to think about an aid program for the highly indebted island country.
When new Eurogroup chief Jeroen Dijsselbloem chaired his first meeting of the 17-nation group on Monday (10.02.2013), the difficult decision on how the EU can help ailing Cyprus was not on the agenda - yet. The Eurogroup is waiting for the outcome of February's presidential elections on the island to know whom to negotiate with.
Cyprus' President Demetris Christofias is the EU's only communist head of state and has close ties to Moscow. Russian financial ties to the meanwhile crippled banks on the island country are just as close. Accusations of money laundering and tax evasion hang in the air - one reason the German government has hit the brakes on the issue of granting a rescue package to Cyprus.
Germany insists the bank issue has to be resolved first. German Finance Minister Wolfgang Schäuble said the ministers decided Cyprus must "set up an independent institution to reliably document the implementation of money laundering standards in Cyprus." He added Cyprus must do more in that respect. Several German politicians have also demanded taking untapped Cypriot natural gas reserves as security for the bailout package.
There is no reason, however, to doubt the bailout for struggling Cyprus, Dijsselbloem said. "I believe we all agree that a solution must be found for Cyprus. We should use the time ahead of the election to work out the best solution possible," the Eurogroup chief said, adding he is convinced the German government will agree. German Finance Minister Wolfgang Schäuble, on the other hand, said he sees no reason for haste, adding, "if we ever want to discuss such a program at all," in an aside.
Holding private creditors responsible?
Cypriot Finance Minister Vassos Shiarly rejects the allegations of money laundering, protesting that his country's financial sector is clean. He said Cyprus has done everything it was requested to do and that it's in a good position to continue on that path. Shiarly angrily dismissed speculation that losses would be forced on depositors in Cypriot banks and investors in the country's sovereign bonds. "Under no circumstances will we accept that," he said, supported by Luxembourg Prime Minister and former Eurogroup chief Jean-Claude Juncker.
Euro zone nations have thus far engaged private creditors in a debt restructuring deal only in the case of Greece. There is concern investors might withdraw in the face of the threat of losing part of their investment to a bailout mission in a euro zone country.
However, Dijsselbloem did not dismiss the possibility. Austria's Finance Minister Maria Fekter said it is justifiable where banks are concerned "when the state resorts to using tax money, then management and employees should also contribute to securing their workplace."
What is not justifiable, she added, is "paying out bank bonuses although tax money was used."
France makes no headway
The French government floated another major topic at the Eurogroup gathering: Paris is concerned about the euro's current appreciation with regard to other leading currencies. The strength of the euro makes exports from the euro zone to the US, China or Japan more expensive. French Finance Minister Pierre Moscovici put part of the blame on "aggressive practices by some of our partners," and urged a "coordinated exchange strategy in order to stabilize exchange rates, especially in the G20 framework."
Moscovici's remarks met with quite a bit of resistance. As a rule, exchange rates are determined by the markets, Fekter pointed out - and dismissed an artificial rate drop as "inappropriate." She said, however, a closer look is warranted if currencies "speculate with devaluations."
Luxemburg's Finance Minister Luc Frieden also dismissed active exchange rate policies and praised the euro's new strength: "A year ago, everyone wondered whether the euro would survive. Today, many think the euro is too strong," he said. "That is the best sign that the euro is a stable currency."
The ministers agreed to discuss the issue at the upcoming G20 summit in Moscow - and to use the summit to warn against too strong of fluctuations.
Eurogroup meetings often last until went into the night, but Monday's meeting ended earlier than usual. The ministers took time out for a goodbye dinner for their outgoing chief of eight years, Jean-Claude Juncker, who had resigned his post last month for health reasons.
The fact that his colleagues had the time for a relaxed meal must be by far the best farewell gift for Juncker. For years, the currency union appeared to be on a knife's edge; night after night, it was all or nothing. Today, there are still major problems, but no one questions the existence of the euro any more. That should set Juncker's mind at rest when he retreats as head of the Eurogroup.