Merkel under fire over Cyprus but unscathed: analysts

Chancellor Angela Merkel faces opposition criticism over the "chaotic" Cyprus crisis but polishes her image as champion of German interests in Europe, a key asset in upcoming elections, analysts said Thursday.

Politicians from the centre-left parties have laid blame at the conservative Merkel's door as near-bankrupt eurozone member Cyprus races to draw up a bailout plan after MPs rejected a tax grab on savings.

"The Cyprus disaster bears her signature," head of the main opposition Social Democratic Party (SPD) Sigmar Gabriel told news weekly Spiegel online.

"Angela Merkel has allowed a country with only a few more inhabitants than (the German western state) Saarland to plunge the whole eurozone into chaos," he charged.

Peer Steinbrueck, who is the SPD's candidate to unseat Merkel in September elections, called it a "blatant political mistake" to have made Cyprus's small depositors fearful over their savings.

And financial affairs spokesman for the Greens' parliamentary group Gerhard Schick told business daily Handelsblatt online that Merkel "bears part of the responsibility for the dead end in which the crisis management of the Cyprus issue is currently stuck."

Cyprus's lawmakers Tuesday rejected the terms of an EU bailout deal which would have slapped a one-time levy of up to 9.9 percent on bank deposits as a condition for an EU-led 10-billion-euro ($13-billion) loan.

The 5.8 billion euros the highly unpopular proposal would have raised was crucial to Nicosia getting the full rescue.

As the crisis mounted and anti-German protests were seen on the Mediterranean island, Merkel was initially guarded about publicly commenting on Cyprus, where leaders are now focused on a 'Plan B' to secure the loan and authorities have been forced to shut the banks for 10 straight days.

Merkel waited until Wednesday to speak publicly about the fresh turmoil, saying the eurozone had a "duty" to work with Cyprus to resolve the debt-mired island's banking crisis and called the country "our partner in the euro area".

But she stressed the importance of Cyprus in future having a "sustainable banking sector".

"The current banking sector is not sustainable," she warned, to be followed by her spokesman Steffen Seibert saying later that bank shareholders, bond owners and depositors would need to be involved in any deal.

Werner Weidenfeld, a political science professor at Munich's Ludwig Maximilian University, said her public position was "tactically very good".

"On the one hand she affirms the principle of 'we will show solidarity' and on the other, and this message clearly has designs on domestic politics, she says that the Cypriots must contribute to their own rescue," he told AFP.

Criticism by the SPD has a limited impact anyway since the party has always voted along coalition government lines on European crisis-fighting policy, he pointed out.

On the details, Merkel is allowing Finance Minister Wolfgang Schaeuble to take the lead, he added, judging she was currently not threatened by the Cyprus crisis or more widely by the eurozone turbulence.

Other analysts agreed.

"Even if she takes some hits, her personal popularity remains intact," Ulrike Guerot, of the European Council on Foreign Relations, said.

Head of the Forsa polling institute Manfred Guellner said Germans had a deep-seated fear about monetary stability. "But the euro crisis, just like the banking crisis previously, is not blamed on Merkel or German policy," he added.

Several editorialists however were harsher in their criticism.

"Cyprus brings to an end Merkel's European aura," the German online edition of the Wall Street Journal said, adding that her strategy of minimising risks until the September 22 elections had run into trouble with the "chaotic" handling of the Cyprus crisis.