U.K. Chancellor of the Exchequer George Osborne criticized euro-area countries over their handling of Cyprus’s 10 billion-euro ($13 billion) bailout.
“It has not been well handled over the last 10 days,” Osborne told the House of Commons Treasury Committee in London. The chancellor criticized an initial plan to tax all bank deposits to help pay for the rescue and said he made “strong representations” to change it.
Cyprus was spared a disorderly sovereign default and unprecedented exit from the euro early yesterday by bowing to demands from creditors to shrink its banking system in exchange for aid. It was the second time in nine days that the Mediterranean island struck a deal with its euro partners and the International Monetary Fund. Parliament in Nicosia rejected a key plank of the first accord, a tax on all bank accounts that sparked the indignation of smaller depositors.
The banking crisis in Cyprus was “a long time in the making,” Osborne said. Euro-area governments, while making attempts to protect their taxpayers and learn the lessons of previous bailouts, acted too slowly, and the previous Cypriot president had also hindered a solution, the chancellor said.
“It’s clearly the case that we all would have been better served if the euro zone had moved more swiftly to deal with its problems. It’s been a painstakingly slow process,” Osborne said. “We will make clear where we think mistakes have been made.”
The U.K. made representations to Cyprus, Russia and the IMF to stop account holders with less than 100,000 euros from being made to contribute to the Cyprus bailout, Osborne said. He said he’s “pleased” to see it wasn’t a feature of the final deal.
“We did not have prior notice, as I think most of the euro zone did not have prior notice, of the decision that the Cypriots took that they would include insured depositors,” Osborne said. “Once that became known to us and everyone else involved in this process, we made strong representations to the various bodies involved that we didn’t think that was a sensible step.”
The U.K. Treasury has sent Tom Scholar, its second permanent secretary, to advise the Cypriot government, drawing on Britain’s recent experience of bank bailouts, Osborne said.
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