Rehn: “We warned Cyprus from November 2011”

Since 2011, the Commission has repeatedly alerted Cyprus to its problems within the framework of the European Semester, Commissioner for Economic and Monetary Affairs Olli Rehn has said.
In his reply to a question by Cypriot MEP Antigoni Papadopoulou regarding the Eurogroup decisions on Cyprus, Rehn said that “in November 2011, we warned the Cypriot authorities that a financial assistance programme would be unavoidable unless the persistent economic problems were immediately addressed”.
He also stressed that “when it becomes inevitable that a country is in need of financial assistance, it is essential that action is taken as soon as this is recognised,” and that “delays are very costly to the economy and society”.
Rehn also said that “the problems of Cyprus built up over many years” and that “at the heart of the Cypriot problems was an oversized banking sector that thrived on attracting foreign deposits with very favourable conditions.”
“These capital inflows also contributed to a property boom and the accumulation of external imbalances,” he said, adding that “the depth of the banking problems stemmed from poor practices of risk management such as the build-up of concentrated risk exposures by the two largest Cypriot banks”.
The Commissioner notes in his reply said that “indeed, it is correct that large losses of the Cypriot banks can be attributed to the voluntary participation in the Greek PSI and also to a high accumulation of bad loans in Greece”.
He also noted that the adjustment programme for Cyprus “will help avoid a disorderly default with all its dramatic ramifications for the Cypriot people and it will support Cyprus in correcting its excessive economic imbalances”.
“The key objectives of the programme”, he continued, “are to restore the viability of the banking sector, to ensure the health of public finances, and to create the conditions for recovery of growth and job creation”, he said.
A Troika mission of inspectors from the international lenders (European Commission, ECB, IMF) has been in Cyprus since July 17 to assess the implementation of a Memorandum of Understanding, the basis of the 10 bln euro bailout.