The Republic of Cyprus, an island in the eastern Mediterranean, has been a member of the European Union since 2004 and adopted the euro as its currency in 2008. Banking, tourism, and shipping are the biggest industries. Last year, the left-wing government in Nicosia announced it would need international help to keep the country afloat, after rating agency Fitch downgraded Cyprus’s credit rating to junk status. Fitch justified its decision with the heavy exposure of Cypriot banks to bad Greek debt.
And herein lies the problem. Large parts of the bailout that Cyprus is asking from the EU and the International Monetary Fund (IMF) would be used to recapitalize Cypriot banks, almost €11 billion ($14.7 billion) of the €17 billion ($22.7 billion) aid package the country needs. Potential creditors in northern Europe, namely Germany, are balking at the idea.
“How am I supposed to explain to my voters that their taxes are used to bail out Russian billionaires?” asks Mr. Schneider, who is also one of the opposition MPs whose vote Chancellor Angela Merkel would need were she to put a bailout for Cyprus to the German parliament.
His suspicions are based on a confidential report compiled by Germany’s external secret service, the Bundesnachrichtendienst (BND). Last November, German media quoted the BND as saying that Russian citizens had deposits of €26 billion ($34.7 billion) in Cypriot banks, more than the country’s GDP. According to the report, Cyprus facilitates money laundering by generously granting citizenship to wealthy foreigners. Up to 80 Russian oligarchs gained access to the common European market this way, the BND says.