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Germans fret over eurozone as Cyprus woes deepen

Sept. 6, 2013 at 5:49 PM   |   Comments

NICOSIA, Cyprus, Sept. 6 (UPI) -- Cyprus is having its worst economic downturn since the 1970s and that's bad news not only for Cypriots but also for Germans and other eurozone members.

Fears over what German taxpayers may have to do next to bail out Greece are already an election issue as German Chancellor Angela Merkel seeks a third term in Berlin's Bundestag parliament elections Sept. 22.

Greek and Cypriot economies are so interlinked that Greek economic troubles are seen behind the crisis that forced Cyprus to seek EU help in return for a crushing austerity program.

New data show the Cypriot economy shrinking to the worst levels since the 1970s, raising the possibility that if Greece asks for more cash in an extension of an EU bailout deal, Cyprus may not be far behind in requesting similar help, analysts said.

The Cypriot economy shrank by 5.9 percent year-on-year in the second quarter of 2013 -- its eighth consecutive quarterly reduction in gross domestic product, the Cyprus Statistical Service said.

Cypriot lawmakers in Nicosia agonized this week over tough austerity terms set by the EU and the International Monetary Fund in return for further EU cash payouts. After emotional debates, the lawmakers voted to usher in an unpopular austerity package that's seen likely to bring more hardship to the eastern Mediterranean nation of 1.1 million.

Cypriot media predicted heavier job losses as a result of the new austerity package. Added to economic concerns was the Cypriot House of Representatives call to Britain to desist from using its bases on the island for any military operation in Syria "or anywhere else" in the Middle East, Cyprus News Agency said.

Cypriots fear an escalation in Syria could deal a mortal blow to their struggling economy. Few acknowledge increased military activity in the region may help the island's economy.

Speculation about the potential economic effect of the crisis in Syria is counterbalanced by concerns over the risk of the troubled island becoming an unwilling party in a wider regional conflict.

During debate over the austerity package, lawmakers expressed concern the conflict could be an unwelcome burden for Cyprus despite the promise of military-related economic activity.

Cyprus, the EU and the IMF signed a $13 billion bailout package in March but less than a third of the amount has been paid. The second installment is due to be paid after Friday's vote.

Lawmakers hotly contested the EU-IMF austerity demands late Thursday. After an initial rejection of two bills on the package, the lawmakers finally agreed to EU-IMF demands Friday as it became clear denial of a further cash injection from the EU and European Central Bank would spell trouble for Cyprus.

Both EU and IMF analysts say the Cypriot economy is unlikely to start a recovery before early 2015.

German voters, worried over a future Greek bailout, have yet to realize that Cyprus, too, may be a candidate for further cash handouts. German doubts over the viability of the eurozone are beginning to be reflected in opinion polls before the election.

Germany's anti-euro Alternative for Germany party is seen likely to win a few parliamentary seats, German media reported.

"This could cause a huge upset for the established parties -- and dramatically alter the German political landscape," Der Spiegel said.

© 2013 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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