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Germany's Steinbrueck: Another Cyprus Can't Be Ruled Out

German opposition leader Peer Steinbrueck has warned Europe could see a repeat of the Cyprus crisis even as the bailout costs for the island nation have ballooned.

Speaking to CNBC after the Social Democrats' (SPD) crucial party conference on Sunday, Steinbrueck also said Cyprus would have to fund the increased costs itself.

Asked whether a repeat of the crisis engulfing Nicosia was possible, Steinbrueck said: "Nothing can be excluded. As we saw, the rescue of Cyprus has just increased by another 6 or 7 billion euros, but this will have to be contributed by the Cypriots themselves. That tells you we are now seeing further escalation on a weekly basis."

Steinbrueck, a former finance minister under Angela Merkel from 2005 to 2009, has been critical of Merkel's policies prescribing austerity for indebted euro zone countries.

"It's all about the dosage(...) It is very important that consolidation is enacted, but it needs to be a dosage that isn't deadly, and it must be accompanied by economic impulses, measures against youth unemployment, tougher regulation of the banks," Steinbrueck said, adding that austerity risked hurting Germany's export markets.

"We know as Social Democrats that along with this comes solidarity with countries that are not doing as well. I am trying to make it very clear to my fellow Germans that Germany will only fare as well as its European neighbors. For those who believe this is too pathetic, I want to point out that Germany is an export oriented country. If other countries are doing poorly, it directly impacts Germany with its heavy export driven growth model," he said.

(Read More: Don't Underestimate Germany's New Anti-Euro Party)

While many European countries have seen political challengers question a larger interference by Brussels, Steinbrueck agrees with Merkel on the need for deeper cohesion in Europe.

As Barclays wrote in a recent note, "the SPD party is inclined to accelerate EU integration."

But Steinbrueck's strong views against austerity don't mean they will become German policy anytime soon.

Recent polls by Forsa suggest the Social Democrats' popularity is in the doldrums. Only 23 percent would vote for the SPD, while Merkel's Christian Democrats (CDU) would get 41 percent. The SPD's favored coalition partner, the Greens, would garner 14 percent. The CDU's desired junior coalition partner, Free Democrats (FDP) would merely get 5 percent of the votes, which makes the chances of a strong ruling coalition very slim.

(Read More: Bitter Setback for Merkel Months Before German Election)

Only 32 percent of Germans would want Peer Steinbrueck to become chancellor, if they could elect him directly.

Steinbrueck's election bid has been hounded by his perceived lack of charisma and by several gaffes, such as his infamously calling Italian politicians clowns, complaining about the chancellor's meager pay or making it clear he does not want to drink cheap wine.

But, Steinbrueck told CNBC: "Polls don't matter. It's all about the election outcome, and the SPD [Social Democrats] has done very well in recent elections here in Germany."

On Sunday, Steinbrueck carefully avoided any blunders and unveiled his party's manifesto, which the SPD hopes will signal its turnaround.

His message is clear - he wants more social fairness. Among his proposals is an increase in the top income tax rate to 49 percent, a crackdown on tax evasion, tougher financial regulation and the introduction of a minimum wage of 8.50 euros ($ 6.50).

(Read More: Soros Tells Germany It Should Leave Euro)

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