Germany approves global bailout package for Cyprus
Majority of lawmakers also back move to give Ireland, Portugal seven more years to repay aid
The German parliament yesterday approved an international bailout package for stricken euro-zone member Cyprus by a large majority.
A final tally by the Bundestag lower house showed 486 deputies voted for the measure, with 103 against and 11 abstentions.
"We must avoid turning the problems in Cyprus into new problems for other euro countries," Finance Minister Wolfgang Schaeuble told lawmakers before the vote. "Cyprus is in a dramatic situation. If we don't help Cyprus, then Cyprus inevitably faces sovereign default."
Lawmakers also overwhelmingly backed a deal by euro-zone finance ministers that gives Ireland and Portugal an extra seven years to repay aid they have received, to allow them to consolidate progress.
Euro-zone finance ministers last week formally approved new terms for the Cyprus debt rescue that will cost far more than first thought - €23 billion (HK$234.4 billion) rather than €17 billion.
Euro-zone partners and the International Monetary Fund are to provide €10 billion of this amount, while the Cypriot government will have to find the rest.
Germany will kick in about a third of the international assistance. The debt rescue involves a radical restructuring of Cyprus's bloated banking sector, with an economy heavily reliant on financial services now expected to shrink by up to 12.5 per cent over the next two years.
Schaeuble had urged lawmakers to back the Cyprus rescue, citing the gradual recovery of other stricken euro-zone members as evidence of the aid-for-reforms strategy's effectiveness.
He said that countries such as Portugal and Ireland had shown that tough budget cutting coupled with international assistance could save a debt-mired country. "Both have undertaken enormous efforts, are fulfilling the requirements of their [rescue] programmes and are on the right track," he said.
Schaeuble also noted substantial progress made in the past three years in taming the euro-zone crisis, pointing to a hike in exports from southern European countries as well as a sharp drop in public deficits.
Striking a conciliatory tone, Schaeuble said that Germany's preaching of austerity in Europe sometimes lacked compassion for the sacrifices made by the people of crisis-hit countries.
"In our country in particular where the euro crisis is not felt in everyday life, we must issue a reminder that the people in Greece, Portugal and Cyprus are going through tough times," he said.
But he stressed that there was "no other way" than fiscal discipline to achieve sustainable long-term stability and growth.
"For a strong exporting country like Germany, a stable common European currency is an essential foundation for growth, jobs and prosperity," he said.
Polls show that Germans strongly support the crisis-fighting strategies of Chancellor Angela Merkel and Schaeuble, with five months to go until a general election.
Two of the three opposition parties in parliament, the Social Democrats (SPD) and the Greens, also lent their support in yesterday's vote as they had on previous bailouts for Greece, Ireland, Portugal and Spanish banks.
But SPD parliamentary group leader Frank-Walter Steinmeier said the vote should not be seen as a stamp of approval for the centre-right government's crisis management. He accused Schaeuble of "amateurish" moves on Cyprus in particular, referring to an initial clause requiring even small bank depositors to stump up for the bailout.
Additional reporting by Bloomberg