-Analysis-

MUNICH - One thing is clear with regard to Cyprus: Chancellor Angela Merkel and Germany’s Finance Minister Wolfgang Schäuble would do best to lay low for a while. It is at their urging that the country’s bank account holders are being asked to bear part of the cost of an international bailout.

One could also put it this way: money would be partially expropriated from these account holders, and even in Germany, the question is now being asked -- where does this end, and how much of Merkel’s 2008 guarantee with regard to German savings still stands? On Monday, one radio listener called in and asked how he could be sure that the government wouldn’t next be expropriating money from German account holders like him.

"Why would they do that?" the moderator asked. "Because they can!" the man replied.

Yes, they can -- and in the case of Cyprus the move is fundamentally right. Euro bailouts so far have enabled many of those bearing part of the responsibility for the crisis to get off scot-free. Take the case of Ireland, for example. What the country basically did was bail out foreign banks that Irish banks owed money to, and Irish taxpayers were left with a tab they’re still paying – and the Emerald Isle was subsequently left to stew in its own juices as many who should have shared the burden were absolved of all responsibility, and promptly turned their backs on it.

Such course was only corrected on the second Greek bailout package, when foreign creditors were also predicting apocalypse if they got a haircut – yet the apocalypse failed to materialize.

In Cyprus, the euro countries are going one step further: instead of just handing over the billions, they’re asking what the country, and its own and foreign financiers, are bringing to the table to help solve the problem. It only makes sense, because the collapsed business model with its tax dumping, lax financial controls and enticing incentives to foreign millionaires wasn’t devised in Berlin or Paris, but in Nicosia.

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Angela Merkel and Nikos Anastasiadis in 2012 - Photo: European People's Party

Now that the euro countries have a permanent bailout fund, they are no longer helpless in the face of blackmail attempts by the financial markets.

That said, however: as right as it is for the holders of large accounts to bear part of the cost, it is equally clear that small account-holders need to be protected. It is hard to understand Cypriot President Nikos Anastasiadis’s claim that they have to share in costs because without them the requisite amount of money can’t be raised, which only serves to fuel opposition to the plan and divert attention away from the fact that the government is not moving on crucial points.

Raising corporate tax from 10% to 12.5%? Laughable. There’s still no financial transaction tax, and the question as to whether -- over and above savings accounts -- securities custody accounts, villas and “mailbox” companies will also be subject to the planned wealth tax remains unanswered. Anastasiadis must respond.

In Cyprus, it’s not just a question of a couple of banks having overreached: it’s an entire economic model that has failed. That’s the difference between this situation and Germany – and that’s also the reason why savings there are in danger and not here.