Mario Draghi critical of initial Cyprus bailout plan

Thursday 04 April 2013 23.58
The ECB has held its interest rate at 0.75% for the past nine months
The ECB has held its interest rate at 0.75% for the past nine months

The head of the European Central Bank Mario Draghi has attacked the first bailout plan for Cyprus.

Mr Draghi said the initial plan to levy all depositors "was not smart to say the least".

He added that the ECB did not foresee savers covered by a guarantee being burned by its plans.

Mr Draghi said: "You have a pecking order, and here the insured depositors should be the very last category to be touched. The (European) Commission draft directive foresees exactly this."

He also said the Cypriot bailout was not a template for other countries.

The remark follows a controversial statement by the head of eurozone finance ministers, Jeroen Dijsselbloem, who suggested and then retracted a remark that it could be a "template" for other troubled countries.

The eurozone struck a deal last month to hand Cyprus a bailout worth €10bn.

The eurozone demanded rich depositors in its banks to forfeit some money despite the risk of a wider bank run.

The central bank also left the interest rate on its deposit facility at 0.0%.

It held its marginal lending facility - or emergency borrowing rate - at 1.5%.

On Ireland, Mr Draghi said it was up to eurozone finance ministers to decide whether the European Stability Mechanism should be used to recapitalise Irish banks.

He added that any move to break the link between countries and banks would be welcome.

Earlier, the ECB opted to hold its main interest rate at a record low of 0.75%.

The ECB is waiting to see whether the economy stabilises or a recent slew of weak economic data is a start of another downturn.

Some ECB policymakers, including Mr Draghi, have stressed that the central bank's top priority is to enhance the transmission of its already ultra-low interest rates across the eurozone.

Across the eurozone interest banks charge varies wildly across the common currency area.

The decision marks the ninth month running with the ECB's main interest rate on hold at 0.75%.

Elsewhere, France has urged Germany to grant it more time to hit its public deficit-cutting target.

France has denied that it was turning into the new "sick man of Europe" even as data pointed to a deepening French downturn.

It has acknowledged it will miss a 2013 goal of bringing its deficit down to 3% of output.

France wants its EU partners - and notably Germany, the eurozone's largest economy - to give it another year to meet the target.

Speaking at an event in the border city of Strasbourg to mark the Franco-German partnership, Finance Minister Pierre Moscovici asked his German counterpart Wolfgang Schaeuble not to risk hobbling the French economy by insisting on more austerity.