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Cyprus

European court rejects appeal on Eurogroup authority

Cyprus and the Troika (European Commission, ECB and the IMF) agreed on a €10bn financial assistance package which featured a haircut on uninsured deposits

By George Psyllides

THE European Court yesterday rejected applications filed by Cypriots asking for the annulment of a Eurogroup decision, taken in March 2013, to seize bank deposits.

The applications requested the annulment of the March 25 Eurogroup decision concerning the political agreement concluded with the Cypriot authorities on the key elements necessary for a future economic adjustment programme, and on the financial assistance to be provided by the European Stability Mechanism (ESM) as part of that future plan. In particular, the applications filed in October 2013, focused on the part of the decision on the restructuring of the banking sector, as implemented by the Central Bank of Cyprus.

The applicants argued that the decision (which is a joint decision of the European Central Bank and the European Commission) went beyond the powers which have been granted to those institutions by the EU Treaty and violates fundamental rights.

They also argued that neither the Treaty nor the Protocol for the Statute of the European System of Central Banks and of the ECB provide for any power to proceed with a haircut on deposits.

Cyprus applied for financial assistance from the EU bailout mechanism as its two largest banks, Bank of Cyprus (BoC) and Laiki Bank, requested state support following mass losses as a result of the Greek sovereign debt write-down.

On March 25, 2013, Cyprus and the Troika (European Commission, ECB and the IMF) agreed on a €10bn financial assistance package which featured a haircut on uninsured deposits (over €100,000) to recapitalise BoC, whereas Laiki Bank was wound down and depositors lost all their savings above €100,000.

The court examined whether the Eurogroup statement could be attributed to the European Commission and the ECB.

The Eurogroup, it said, was a discussion forum, at a ministerial level, and not a decision-making body.

Despite the Commssion and the ECB participation, the Eurogroup is an informal meeting of member-state ministers, the court said.

No powers have been transferred to it from the Commission and the ECB, as the applicants claimed, nor do they have the authority to exercise control over it.
Thus, it was not possible to attribute statements made by the Eurogroup to the Commission or the ECB, the court said.

With its statement, the Eurogroup outlined certain measures agreed at a political level and did not take a final decision on granting support to Cyprus or the conditions the island had to meet. And it did not say the help would be granted only if Cyprus put in place bank resolution measures.

The court said the statement was purely informative and did not constitute an act that could create legal effects against third parties.

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