German High Court Clears European Stability Mechanism
Germany's parliament can now vote on the new rescue fund, which will have the capacity of 500 billion euros and will evenutally replace the European Financial Stability Fund (EFSF). Germany will contribute 27 percent of the fund.
On June 25th, Cyprus applied for bailout funds from the EFSF, and negotiations are going on between the government and the Troika (ECB, IMF, European Commission). Opposition leaders are demanding a meeting with President Christofias in order to contribute to the process, which is set to wrap up by the end of September.
But Government spokesman Stefanos Stefanou said that a meeting will only be called once the government has prepared and presented its proposals to the Troika, effectively leaving opposition parties out in the cold.
Bailout funds will be for the banks and for structural reform, said Stefanou, tacitly admitting something that the government has denied for the last six months - that the wider economy is in trouble and needs support.
"In the meetings we had with the Troika, we had several discussions on solving structural problems and reorganising the economy. When we resorted to the EFSF, we said it was due to the exposure of Cypriot banks to the Greek economy...but the Troika wants to provide funds while ensuring each state can repay this loan...Consequently the discussion turned to the state of the economy, opportunities and problems," he said.
The communist government has been extremely reluctant to cut its costs, saying that austerity only leads to economic recession and blaming any economic woes on the banks. However, the economy has been in double-dip recession for the last year and sustaining government spending at its current rate has become less and less feasible.
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