BERLIN (Reuters) - Luxembourg Prime Minister Jean-Claude Juncker said on Wednesday Cyprus's rescue deal could not be a model for other troubled euro zone countries, contradicting his successor as head of the Eurogroup of finance ministers.
Jeroen Dijsselbloem, the Dutch finance minister who replaced the veteran Juncker in January as Eurogroup chairman, told Reuters and the Financial Times in an interview on Monday that ailing banks may in future have to tap uninsured deposit holders, as in Cyprus, rather than EU taxpayers.
He later rowed back from his comments but not before they had hit European shares and the euro and cast doubt on plans for a banking union that is meant to put an end to the euro zone debt crisis by severing the link between sovereigns and banks.
"It disturbs me when the way in which they tried to resolve the Cyprus problem is held up as a blueprint for future rescue plans," Juncker, who headed the Eurogroup for more than eight years, told German ZDF channel's Heute Journal programme.
"It is no blueprint. We should not give the impression that in future savings deposits in Europe might not be secure. We should not give the impression that investors should not keep their money in Europe."
"This harms Europe's entire financial centre," he said.
Luxembourg has a banking sector more than 20 times the size of its economy and is home to about 140 subsidiaries of banks and insurers. The finance industry has helped make the small country of just half a million people the richest in the bloc in terms of economic output per person.
Dijsselbloem's comments on the banks underscored the reluctance of the euro zone's stronger economies, including Germany and the Netherlands, to continue using their taxpayers' funds to bail out struggling debtor nations.
Dijsselbloem also said in the interview that other countries with highly leveraged banking sectors such as Luxembourg and Malta should shrink their banks down.
Juncker said Cyprus was a "special case" and that Luxembourg was completely different.
"We do not attract Russian money to Luxembourg with high interest rates. The Luxembourg financial centre is based on several pillars, we are characterised by the breadth of our product range, we are an active participant in the international credit business," Juncker said.
"There are no parallels between Cyprus and Luxembourg and we do not allow such parallels to be imposed upon us," he said.
Juncker's comments came a day after Luxembourg's Foreign Minister Jean Asselborn accused Germany of "striving for hegemony" in the euro zone by telling Cyprus what business model it should pursue.
Germany, the European Union's biggest and most powerful economy, had insisted that wealthy depositors in Cyprus's banks contribute to the island's bailout and said the crisis has killed a "business model" based on low taxes and attracting large foreign deposits.
German politicians have stepped up their attacks on low-tax financial centres as federal elections loom in September.
(Reporting by Gareth Jones; Editing by Jason Webb)