|Cyprus is "no template" for future eurozone bail-outs, European Central Bank president Mario Draghi has insisted, as he criticised an original plan to bail-in ordinary savers and revealed that there had been an "extensive" discussion on interest rates at its latest meeting.
Mr Draghi's comments were designed to ease market fears that all bank deposits would be at risk in future if international lenders were called-in to rescue struggling eurozone countries.
He was also scathing about Cyprus's initial plan to impose a levy on insured as well as uninsured bank depositors. The country had initially sought to raid the savings of all depositors, even though they had a bank deposit guarantee. This was later changed to only include depositors with savings of more than €100,000 (£85,000).
The move triggered a wave of concern in financial markets, fearing that investors elsewhere would start a bank run. "That was not smart, to say the least, and it was quickly corrected the day after in a Eurogroup teleconference," said Mr Draghi. "You have a pecking order, and ideally uninsured depositors should be the very last category to be touched."
Dutch Finance Minister Jeroen Dijsselbloem, who heads the Eurogroup of eurozone finance ministers, caused a stir in March when he told Reuters that the Cyprus bailout, including depositor levies, could be replicated in future.
“Cyprus is no template, Cyprus is no turning point in euro area policy,” said Mr Draghi. "I am absolutely sure that the chairman of the Eurogroup has been misunderstood."
The ECB chief said that banks should be properly supervised and should focus on building "high buffers or "bail-inable activities" in order to avoid a repeat of last month's fiasco.
Mr Draghi also revealed that there had been “extensive” discussion on interest rates, as he reported that the decision to keep interest rates at 0.75pc was not unanimous for the second consecutive month.
Howard Archer at IHS Global Insight said that there could be a rate cut as early as next month. "While the ECB made no policy changes at its April meeting, the overall tone of its statement and Mr. Draghi’s comments were markedly more dovish and an interest rate cut from 0.75pc to 0.50pc now looks highly likely," he said.
Cyprus must adopt an extra €351m in austerity measures in its 2013 budget before receiving its first bail-out tranche in May, according to a bailout agreement signed with international lenders and seen by AFP.
A government official said on Thursday that the economy might contract as much as 13pc this year under the weight of austerity measures and a restructuring of the country´s banks as agreed in return for a bailout.
"In 2013 the recession may not be 8.7pc as is estimated, it may reach 13pc," Christos Stylianides told state-run CyBC.
The European Commission predicted before the island´s financial rescue that the economy would shrink by 3.5pc in 2013.