MEPs angry at EU's Olli Rehn over treatment of Cyprus

MEPs' protest over Cyprus, 17 Apr 13
Image caption There was anger among MEPs over the EU's handling of Cyprus's financial meltdown

MEPs have attacked the European Commission over its handling of the Cyprus banking crisis, saying it gave too much power to the "troika" team.

The troika - the Commission, IMF and European Central Bank (ECB) - has set the terms of each eurozone bailout. For Cyprus they were especially tough.

Austrian centre-left MEP Hannes Swoboda said the troika had been unacceptably dismissive towards Cypriot ministers.

EU Commissioner Olli Rehn admitted there had been "mistakes" on Cyprus.

He said the EU must draw two key lessons from the Cyprus crisis. "There must be absolute clarity about secured deposits", he said, referring to bank deposits of 100,000 euros (£86,000; $132,000) or less which had initially been targeted for a big "haircut".

That short-lived threat to raid the savings of smaller depositors sowed panic in Cyprus, until the bailout terms were changed by the eurozone, following emergency talks with the Cypriot government.

It also sparked fears that the Europe-wide 100,000-euro guarantee on deposits was worthless.

Mr Rehn, the commissioner for EU economic policy, said the second lesson was that the EU must have a banking union, including a single banking supervisor and a single rulebook.

This year the EU plans to set up the Single Supervisory Mechanism (SSM), putting the ECB in charge.

Costly delay

Mr Rehn said time had been wasted between the Commission warning Cyprus about its economic problems in November 2011 and the Cypriot request for help in June 2012. During that time, the debt crisis for the island's two biggest lenders - Bank of Cyprus and Laiki (Popular) Bank - deteriorated dangerously.

By the time the bailout deal was being negotiated "the scenario of a more gradual economic adjustment was not on the cards anymore, unfortunately", Mr Rehn told the European Parliament.

French MEP Jean-Paul Gauzes, of the centre-right European People's Party (EPP), said there had been "no effective intervention [by the EU] to limit risks that were foreseeable" in Cyprus.

He accused the eurozone finance ministers (Eurogroup) of "poor communications", saying "their behaviour led to a fiasco".

Cyprus eventually agreed a 10bn-euro international bailout, which will see depositors with more than 100,000 euros in Bank of Cyprus lose an estimated 60% of their savings. Laiki is being wound up and folded into Bank of Cyprus.

Originally Cyprus was told to find 7.5bn euros in order to qualify for the 10bn-euro loan, but that was later raised to 13bn, to secure the same 10bn loan.

Mr Swoboda told Mr Rehn "you are responsible to this parliament, the troika is not, stop the troika - we don't need it".

"You know how they treated the elected president of Cyprus? And their rude behaviour to the elected representatives of Cyprus? It's not acceptable."

Public relations 'disaster'

Guy Verhofstadt, the Belgian MEP who leads the liberal group (ALDE), said the way the EU had handled Cyprus was "a disaster". "It gives the impression that Europe is failing - what's failing is the bad inter-governmental system we have today," he said.

He criticised the way the Eurogroup had taken bailout decisions - "meeting at the end of the week, under pressure of the Monday opening of markets".

Takis Hadjigeorgiou, a Cypriot member of the European United Left group of MEPs, accused the Commission of "not listening to what the representatives of the citizens say in parliament".

"In difficult times there was no solidarity," he said, asking: "would the Eurogroup do it for bigger states?" He suggested that the Eurogroup had bullied Greece and Cyprus because they were small countries.

Nigel Farage of the UK Independence Party called the Cyprus crisis "the death knell of the euro".

He said Mr Rehn and the troika had "resorted to the level of common criminals" by targeting bank deposits.

"The precedent has been set [in Cyprus]", he said. "The message to investors, loud and clear, is get your money out of the eurozone."

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