The 10 billion-euro ($13 billion) rescue deal provided to Cyprus by the European Union is “better than bankruptcy,” the bloc’s finance chief said.
The rescue, which allows the island nation to escape a disorderly default and unprecedented exit from the common currency by shrinking its banking system, saves people from losing everything, Michel Barnier said today in Brussels.
The situation in Cyprus is “exceptional” and “something that exists nowhere else,” Barnier said, when discussing the capital controls keeping savers from withdrawing their deposits and forcing losses on accounts with more than 100,000 euros. He said the capital controls can only last a few days. EU laws don’t set out a maximum duration for how such controls can stay in place.
“It is for the Cypriots to tell us” how long capital controls, which can only be enacted “exceptionally,” will last, Barnier said. “It must be temporary. I can’t say how many days.”
He said discussions with Cypriot authorities on capital controls are continuing and conceded the EU probably should have been more vigilant earlier on regarding the out-sized Cypriot banking system.
Barnier blamed the banking crisis on “arbitrage,” adding Cyprus must move away from a “short-term” financial culture.
Had the European Central Bank already taken on its role as banking supervisor in the EU, it wouldn’t have allowed Cypriot banks to “do what they have been doing for some time now.” Barnier said.