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European Commission

Maroš Šefčovič

Vice-President of the European Commission

Introductory remarks of Vice-President Šefčovič

European Parliament Open Conference of Presidents/Brussels

20 March 2013

Thank you for your invitation to the Open Conference of President. Let me apologize for President Barroso, who is on his way to Moscow for the meeting between the College and the Russian Government.

I will focus my introductory intervention on the outcome of last week's European Council, though I understand that you will be interested to raise the issue of Cyprus which I will address at the end of my remarks.

Last week's Spring meeting focused mainly on the regular business of economic governance. I am glad to say that despite some predictions, there was no confrontation between the proponents of consolidation versus growth. Rather there was a serious debate which confirmed the need to stay the course of fiscal consolidation and to accompany it with all the necessary measures to support growth and the social dimension, especially through employment. This reflects clearly the intensive discussions and calls which you have held here in the EP.

There was a clear understanding about the necessity to successfully reconcile both objectives of austerity and growth simultaneously. Examples like Ireland and Latvia show that this is possible.

Europe is going through the largest financial and economic crisis in decades, aggravated by imbalances built up over a long period. Member States have embarked on an ambitious agenda of structural reforms, some of which have short-term costs, but are essential to make our economies fit for the 21st century.

In those Member States which are pursuing an ambitious implementation of their reform agenda, there are first signs of the reforms beginning to show positive results.

Keeping up structural reform is crucial to put the EU's economy back on track. Reforms, of course, take time to take effect, which further reinforces the need to stick to our reform priorities and put focus on implementation.

It is against this background that the debate in last week's European Council has taken place on the Commission's Annual Growth Survey. Your house had already intensively and constructively discussed the proposed priorities over the last weeks and months. The discussion in the Spring European Council gave rise to a welcome political exchange of views on our current policy priorities and the way forward to sustainable growth and jobs creation. Ultimately the deliberations have confirmed the proposed course of action, but also pointed out to the need to pay more attention to the short term costs and social consequences.

On the national reform plans, there is, in particular, an urgency for growth-enhancing reforms and for tackling unemployment and the social consequences of the crisis.

Since January 2012, the Commission has been working with action teams in the eight MS with the highest levels of youth unemployment. We have targeted EU financing to support job opportunities for young people and help SMEs get access to finance. By the start of this year around 16 billion euro of EU funding has been mobilised. Nearly 800 000 young people and 55 000 SMEs are set to benefit.

Reversing the youth unemployment trend needs sustained and long term effort. Therefore we are glad that MS recently endorsed the COM proposal for a Youth Guarantee. The new Youth Employment Initiative will provide additional 6 billion euro in much-needed support for young people in regions with youth unemployment rates above 25 %.

I want to assure you that the Commission will provide all the support that Member States may need, in particular on youth unemployment.

Let me say also that implementation of agreed actions is of crucial importance. This is why we welcome very much the strong emphasis of the European Council conclusions on implementation. If you take, for instance, the internal market, there appears to be a gap between what was agreed and what MS need to do. Swift adoption of building blocks of the EMU are equally important. This is why I welcome very much the agreement which you have reached yesterday on the Single Supervisory Mechanism.

In conclusion, the orientations of this European Council meeting will decisively contribute to shaping the national policy plans and draft budgets for 2014. On this basis, the Commission will carry out its country specific assessments in May and issue recommendations.

At the June European Council we will then have the opportunity to discuss in detail the progress made since last year and the new set of country specific recommendations.

On the external dimension of the European Council discussions, notably G8, trade, Russia and Syria, I would like to refer to what Herman van Rompuy has already said.

The traditional meeting between President Schulz and the European Council, your President informed about the EP's resolution on the MFF and the clear conditions the EP has set for starting and concluding negotiations.

This is a key step forward, as we have now the official positions of both the Council and EP to finalise the negotiations on MFF.

I can assure you that the Commission will play a constructive role on the EP essentials (flexibility, review, own resources, 2013 payments) to reach agreement.

Even though the issue of Cyprus was not discussed at either the last European Council or in the Euro-area summit, I am fully aware of the fact that the situation there will clearly overshadow our debate today.

Allow me therefore to inform you about the current situation in Cyprus, and of activities of the European Commission in this regard.

I have to underline, that Vice-President Rehn asked the Cyprus authorities to consider a financial assistance already in November 2011. Already at that time we regarded the financial situation in Cyprus as extremely serious. However, It was rejected by the Cypriot Government. After that, Russian loans helped to temporarily prolong the unsustainable situation in the country.

Cyprus asked for a programme only in summer 2012. Following Eurogroup endorsement, the Commission prepared a comprehensive adjustment programme for Cyprus.

Unfortunately, because of a lack of political will on the Cypriot side, the Eurogroup and also the Commission had to wait for a new government. This brought us to recent weeks.

In a preparatory meeting of the Euro working group at the beginning of March 2013, Vice-President Rehn presented a managed scenario as an alternative to a full bail-in option. The scenario was based on burden-sharing by beneficiaries of Cyprus´ business model, increased taxation of capital income, a corporate tax hike, a contribution from Russia, a financial contribution by domestic pension funds and restructuring of the banking sector according to state aid rules without allocating the losses to unsecured depositors, a significant reduction in size of financial sector and privatisation of inefficient utilities.

But in the course of the negotiation this was refused by several Member States and the IMF. Instead, a substantial bail-in was proposed. The Commission warned about the overall consequences on the financial stability of the country. Following this, an alternative solution of a stability levy of 5.8 billion euro was introduced as a condition for granting Cyprus the ESM loan of 10 billion euro.

The Commission felt a duty to support the programme, since the alternatives put forward were both more risky and definitely less supportive of Cyprus´s economy.

The only alternative to this solution was the immediate bankruptcy of major banks of Cyprus. It was clear that Eurogroup couldn’t agree on any other solution than the one which was finally adopted.

Regarding the one-off levy on deposits below 100,000 euro, the Commission made it clear in the Eurogroup before the vote in the Cypriot parliament, that an alternative solution respecting the financial parameters would be acceptable, preferably without a levy on deposits below 100,000 euro. The Cypriot authorities did not accept such an alternative scenario, and the Cypriot parliament rejected the agreement.

The Commission has done its utmost to assist Cyprus and worked for a constructive and managed solution. However, decisions are taken by the Member States, and no decision can be taken without their co-operation - including Cyprus itself. The Commission continues to stand ready to facilitate solutions, and is continuing contacts with Cyprus, the other Member States in the Eurogroup, the EU institutions and the IMF.

Some of you called for a full debate on Cyprus. We, in the Commission, are for it but I suggest that the Chairs of the Eurogroup and IMF should be invited as well. We can neither speak on their behalf nor do we want to be criticised on their behalf.

Now the Commission (President Barroso, Vice-President Rehn) is working hard in order to find a solution. Our experts are in the country, on the ground. We continue to believe that a solution can be found, but we need full cooperation from the side of the Cypriot authorities.

The alternative to this situation is bankruptcy of the country and financial losses for Cypriot citizens. We want to avoid this and we want to contribute to the solution.

I hope that the European Parliament can support us in this effort.


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