ANGRY European lawmakers yesterday roundly condemned the handling of the Cyprus bailout programme, blaming the Eurogroup for its appalling communications, the Commission for not defending insured depositors, and some member states for their “colonial” approach to addressing eurozone troubles.
During a debate in the European Parliament (EP) on the Cyprus bailout, MEPs accused the Commission and its troika partners, the IMF and European Central Bank (ECB), of creating a “fiasco” and “disaster”, with much wider implications than Cyprus. One went as far as to call for the disbanding of the troika.
Taking the floor to open the debate, EU Commissioner for Economic Affairs Olli Rehn said the Commission would have preferred a more gradual adjustment for Cyprus but since member states were only committing €10bn this was not possible.
“This (financial) constraint severely limited the options available,” he said. He went on to say that it was time to stop the blame game. Rehn acknowledged that the Cyprus agreement had been “very difficult, and not without mistakes”.
He argued that the Cypriot authorities, member states and EU institutions had to find unique solutions to exceptional problems. “They had to do so without previously tested instruments and – in the final stages of negotiations – under enormous time pressure.”
Two key lessons can be learnt from the process, he said. “First, there must be absolute clarity about secured deposits. In this respect, the Eurogroup and Cyprus took rapid corrective action and underlined that secured deposits indeed are secured in Europe.”
Rehn failed to mention that it was the Cypriot parliament that rejected the Eurogroup’s initial decision to tax all depositors big and small, forcing a second all-night meeting which led the eurozone finance ministers to change their position.
“Second, the developments in Cyprus demonstrate the reasons why a Banking Union is a necessary element of a true European Monetary Union. We need a well-functioning Single Supervisory Mechanism with a single rulebook to prevent the emergence of an unsustainable banking sector like in Cyprus,” said Rehn.
The EU commissioner noted that Cyprus’ problems-mainly an oversized banking sector- built up over many years. Poor practices in risk management heightened the banks’ problems while a lack of “adequate oversight” allowed the two largest Cypriot banks to build up “by far too concentrated risk exposures”.
The Commission had alerted Cyprus on its problems as early as May 2011, he said.
“Then, in November 2011, we communicated to the Cypriot authorities that a financial assistance programme would be unavoidable, unless the persistent economic problems were immediately addressed.
Eventually, Cyprus asked for financial assistance, but only in June 2012.”
Following half a year of talks, a draft agreement was reached with the Cypriot government.
Given the financial constraint of a €10bn bailout, despite Cyprus’ needs being larger, the scenario of more gradual economic adjustments for Cyprus was not on the cards anymore, argued Rehn.
It soon became clear that Laiki had to be resolved immediately: “The risk of a complete collapse of the entire banking system – and thus a sweeping loss of deposits and savings and a disorderly default of the sovereign – was indeed very real.”
In his address, the Commissioner avoided comment on the decision to transfer Laiki’s €9 billion-plus debt to the ECB on to the restructured Bank of Cyprus, leaving its prospects of survival shaky.
Rehn- standing in for Commission President Jose Manuel Barroso who attended Margaret Thatcher’s funeral- then received a barrage of criticism from MEPs as the debate got into full swing.
Head of the Socialists and Democrats group, Austrian MEP Hannes Swoboda called on the Commission to disband the troika.
He told Rehn: “You are responsible to this parliament, the troika is not, stop the troika - we don't need it.”
He added: “You know how they treated the elected president of Cyprus? And their rude behaviour to the elected representatives of Cyprus? It's not acceptable.
“The Commission needs to help the people of Cyprus not dominate them. There has been a lack of transparency in the Commission's actions,” he said.
Swoboda criticised the Council and more particularly Germany for behaving in a “near colonial way”.
French MEP Jean-Paul Gauzes from the centre-right EPP (European People’s Party) said the Eurogroup's “poor communications” and behaviour resulted in a “fiasco”.
He accused the EU of not effectively intervening “to limit risks that were foreseeable” while also blamed Cypriot banks for having built up too much risk.
Belgian MEP and head of the Alliance of Liberals and Democrats Guy Verhofstadt said it was essential to find out exactly what went wrong. He described the EU’s handling of Cyprus “a disaster”.
“It gives the impression that Europe is failing – what’s failing is the bad inter-governmental system we have today,” he said.
The Liberals head criticised the way the Eurogroup took bailout decisions, “meeting at the end of the week, under pressure of the Monday opening of markets”.
Verhofstadt also questioned where the idea to impose a haircut on EU-guaranteed deposits of under €100,000 came from.
“Cyprus is proof a mechanism needs to be put in place and not use a case-by-case approach. Who proposed a levy on all deposits? It was the worst idea ever.”
He said the ECB, troika and Eurogroup President Jeroen Dijsselbloem had difficult questions to answer. If these answers were not forthcoming then the EP should set up a committee of inquiry, said Verhofstadt.
AKEL MEP of the European United Left, Takis Hadjigeorgiou, whose party was in power when a draft agreement was reached with the troika last November, accused the EPP of double standards, with support for the Cypriot cause given within the EP but not within the Eurogroup. He also criticised the Commission for ignoring the people’s representatives and imposing measures on Cyprus which it would never apply to larger countries.
“In difficult times there was no solidarity…would the Eurogroup do it for bigger states?” he asked.
The Cypriot MEP added that once Cyprus manages to get back on its feet again it will look into leaving the EU.
The Eurogroup decision on Cyprus was “an assassination of the Cypriot financial sector,” equivalent to killing off the German car industry, he argued.
DISY MEP Eleni Theocharous expressed Cypriot people’s disappointment with the perceived lack of EU solidarity shown towards Cyprus.
While mistakes were made within Cyprus, the fatal blow dished out to the financial sector and treatment of the troika towards Cypriot citizens was unacceptable, she argued.
Theocharous accused ECB chief Mario Draghi of green-lighting €10bn in liquidity to Laiki (Popular) Bank through emergency liquidity assistance without any restrictions, adding that it is not the depositors who should foot the bill for this.
Greens MEP Daniel Cohn-Bendit said the real solution for Cyprus was to reunite the island in order to unleash growth potential and investment.
European Conservatives and Reformists’ Jan Zahradil from the Czech Republic said the real problem was much wider than what was happening in Cyprus. He said Cyprus was being used as an excuse to attack national fiscal sovereignty.
Leader of the UK Independence Party (UKIP) Nigel Farage accused the Commission of criminal behaviour, robbing people to prop up the euro project. No one has confidence in the euro, said the co-chair of the Europe of Freedom & Democracy group.
“Never could have imagined that the troika would have resorted to the level of common criminals by taking people’s money” and particularly from small investors, he said.
Farage called the Cyprus crisis “the death knell of the euro”.
“A precedent has been set and you can see how the Eurogroup plan to deal with other bailouts,” he said.
“The message to investors, loud and clear, is get your money out of the eurozone before they come and get it. The European Union is the new communism,” said Farage.
Non-attached Laurence Stassen from the Netherlands who hails from Geert Wilders’ Party for Freedom said the only solution for Cyprus was to leave the eurozone. She added that the Netherlands should not be paying out further for the country.
Members of the Group of European United Left of the European Parliament hold posters with the slogan "Hands off Cyprus, Portugal, Greece, Spain, Ireland" during the debate (R)