Will Cyprus Block Its Own Bailout After German Approval?

Germany’s lower house of parliament voted in favor of the 10 billion-euro bailout package requested by Cyprus on Thursday. Reuters reports that 487 out of 601 members approved the measure, affirming that German Chancellor Angela Merkel still has the power to muster cross-party support for controversial spending programs such as this.

“Step by step we are winning back confidence. If you look at the markets, there is still nervousness and uncertainty. But it is considerably less than three years, two years or one year ago,” said German Finance Minister Wolfgang Schaeuble, according to the publication. “The aid for Cyprus secures the successes we’ve already achieved in the euro zone. We must prevent the problems in Cyprus from unleashing new problems in other euro zone countries.”

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This point is likely to strike home with German lawmakers, who would be put on the line to assist any other EU nation that may need a bailout. As it stands, Europe’s largest economy has made it clear that it is fatigued by years of crisis-mode policy making and billions in bailout loans. If Cyprus were allowed to go bankrupt and its financial system collapsed, the contagion could spread to other euro-zone economies still on edge and on the verge of drowning in their own debt crises…

That said, the results of the German vote were largely unsurprising. However, what has shocked the markets on Thursday is a surprise decision by Cyprus’s parliament to vote to ratify the bailout.

Reuters reports that the fractious Cypriot parliament will hold its own vote on the controversial bailout package toward the end of April. News of the vote is a surprise, with lawmakers only recently scheduling it, and a political schism in the country making the outcome uncertain. In March, the nation’s parliament voted nearly unanimously to reject the terms of the initial bailout plan, which would have forced losses on small deposits.

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While the terms have been eased and the bailout is widely seen as necessary to preserve the stability of the euro currency bloc, there are members of the Cypriot parliament who seem likely to vote against it. The nation’s communist AKEL and Socialist EDEK parties control a combined 24 seats in the 56-seat parliament. The Greens Party, with one seat, has already said that it will vote against the measure.

Members of the ruling coalition have expressed confidence that parliament will ratify the bailout.

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