ASSESSMENTS

In Europe, Conflicting Views Over Cypriot Woes

Jan 31, 2013 | 11:15 GMT

People walk past closed shops in the old town of Nicosia on Jan. 26

PATRICK BAZ/AFP/Getty Images

Summary

Tensions are swelling in the European Union over a possible bailout of Cyprus. The European Central Bank is looking to prevent new flare-ups of the eurozone crisis and demonstrate that countries in need will be bailed out responsibly. But Germany, Europe's largest economy and main contributor to EU bailouts, is in an election year and is wary of rescuing a system that has essentially been a hub for Russian money laundering. Berlin is unlikely to dole out funds without stringent conditions — ones that Cypriots would probably reject. Meanwhile, Russia, despite loaning billions of euros to Cyprus in 2011, has lost the appetite to single-handedly rescue the island again, especially since the European Union has begun scrutinizing the Cypriot banking sector more heavily.

With Russia reducing its involvement with the island, Germany and Cyprus will have to reach a compromise that allays the concerns of each country's constituencies. Growing international attention given to the Cypriot crisis could lead to a return of the market instability that rocked Europe for most of the past five years, making a quick resolution of the issue essential to the European Union.

Germany and Cyprus will need to strike a compromise to avoid reigniting the eurozone crisis....

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