EU Commissioner for Economic and Monetary Affairs Olli Rehn has said that the oversized banking sector of Cyprus that thrived on attracting foreign deposits with very favourable conditions is at the heart of the problems of the country which build up over many years.
“These capital flows also contributed to a property boom and the accumulation of external imbalances”, Rehn said in a written answer to a question submitted by Cypriot MEP Antigoni Papadopoulou on the responsibilities of the European Committee regarding the management of the economic crisis in Cyprus.
According to a press release issued Wednesday by Papadopoullou’s press office, the EU Commissioner noted that “the depth of banking problems stemmed from the poor practices of risk management”, adding that “lacking adequate oversight, the two largest banks were allowed to build up far too concentrated exposures”.
The Commission, he added, “does not underestimate the difficult challenges facing the country, and it will do everything possible to assist Cyprus in its efforts to develop a more diversified and sustainable economic model, alleviate the social consequences of the economic shock and mitigate the impact on the most vulnerable people, including with the establishment of the Support Group of Cyprus”.
The Support Group, he continued, “will help the Cypriot authorities to rapidly access the relevant sources of funding available under the cohesion/structural policy programmes”.
He said that “under the assistance programme, Cyprus will be able to request higher pre-financing rates for future applications to various Fund allocations and a 10% "top-up" co-financing rate for cohesion policy and rural development”.
“EU co-funded programmes help provide skill upgrades and re-training to ease labour market transitions and facilitate the reinsertion of workers that are made redundant”, he noted.
In conclusion, Olli Rehn said that “solidarity has always been central to the Commission`s actions and it will be the hallmark of future work with Cyprus to help the emergence of a sustainable economic and social model”.
Excluded from capital markets since May 2011 Cyprus applied for a bailout in June 2012, after its two largest banks requested state aid following massive losses amounting to €4.5 billion as a result of the Greek sovereign debt haircut and to cover is growing fiscal needs.
Cyprus and the Troika of the European Commission, the European Central Bank and the International Monetary Fund agreed on March 25 on a €10 billion bailout which included imposing losses on bank uninsured deposits as well as fiscal consolidation measures amounting to 7.2% of GDP by 2016.
