|German MPs have voted in favour of a bail-out for Cyprus, after the country’s finance minister said that the island’s banking sector would be “sharply down-sized”.
Of the 602 legislators in the Bundestag who voted on the rescue package, 487 backed it, while 102 opposed it and 13 abstained.
During the debate, finance minister Wolfgang Schaeuble warned there would be a high risk of eurozone contagion if Cyprus was allowed to go bankrupt.
Mr Schaeuble warned the Bundestag as it prepared to back the bail-out that the island’s banking sector would be “sharply down-sized”.
But he tried to ressure them that there were “clear arrangements” in place to prevent money-laundering, and that European rescue funds would not go to paying off Russian creditors. He praised reforms in Portugal and Ireland, and said both provided an example for Cyprus.
“Both countries are fulfilling their [rescue] programme requirements. They show that the programme works,” he said.
The Bundestag approved the bail-out package shortly afterwards. It came after new terms for the rescue of Cyprus were approved last Friday by eurozone finance ministers, at a cost of €23bn. Ten billion of this will be from eurozone countries and the IMF.
The Cypriot banking sector, which along with tourism is key to its economy, is expected to shrink by up to 12.5pc over the next two years.
The minister said that bank depositors would have to pay the price for investing in a lightly regulated banking sector.
To applause from MPs, he said: “Anyone who has sought out favourable conditions and higher interest rates in Cyprus, higher risks accompany that. If these risks materialize, you have to bear it.”
“The lesson from the financial and banking crisis of 2008 is that we must not repeat this [mistake]. Taxpayers should not be first in line to carry the risks. Risk and responsibility go together.”
German MPs were also due to vote on a deal by eurozone finance ministers giving Ireland and Portugal an extra seven years to repay the aid they have received.
The German finance minister urged MPs to feel solidarity with people experiencing hard times on Europe’s periphery while insisting there was no alternative to austerity.
“In our country, where we do not feel the euro crisis in everyday life, we should remind ourselves: the people of Ireland, Portugal, Spain and Greece are experiencing a difficult time. There is no viable shortcut – but for those affected it is hard. "
The minister added: "We must combat high youth unemployment in these countries. It is a disaster when 30pc of young people in a generation are unemployed."
Mr Schaeuble spoke of a ‘turn for the better” in southern Europe. “While the reforms are hard, the positive effects can be seen,” he said, noting that competitiveness had increased and public deficits gone down.
He concluded with a defence of the euro, saying that: “Without the stabilizing effect of a common currency, our prosperity would not be secure.”