Merkel ally says Cyprus "playing with fire"

A leading conservative ally of German Chancellor Angela Merkel said on Friday that Cyprus was "playing with fire" and needed to come up with a workable proposal for plugging a multi-billion-euro financing gap urgently.

Volker Kauder, leader of the ruling Christian Democrats (CDU) in parliament, also rejected the suggestion that Cyprus might nationalize pension funds of semi-public companies to fill the hole, saying this was a worse solution than hitting small savers in the Mediterranean island's banks.

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"I don't think this can happen, because this would be huge for pensioners, for the small people. So I don't think this is a proposal that helps," Kauder told public television station ARD.

"If a proposal comes, I am optimistic. But we aren't there yet," he added. "I still believe we will get a settlement, but Cyprus is playing with fire."

(Writing by Noah Barkin)