Prodi Ups the Defense in Eurostat Probe

Romano Prodi, the president of the European commission, faced members of the European parliament in the ongoing investigation into alleged fraud at the European Union's statistical agency, Eurostat, and reinforced the promises to fight corruption which formed his main focus when he took over the position in 2000.

The former Italian prime minister told party leaders and MEPs that he would clean up the financial scandal that currently haunts the EU saying he intended to "stop the rot" by continuing to search for answers but told the assembled officials that he would not be sacking members of the commission.

"Additional investigations will be opened to stop the rot once and for all," he pledged. "I didn't hide anything."

The investigation into suspected double accounting, fictitious contracts and slush funds at Eurostat, the body that supplies information on EU facts and figures to the financial markets, journalists and others, represents the biggest crisis to hit the Italian since his appointment after the previous EU executive had to quit in 1999 over allegations of nepotism and fraud.

Reports blame Eurostat management

Prodi put up a strong defense of his own conduct and that of his officials, emboldened by initial reports into the scandal released on Wednesday. The three reports -- one by internal auditors, one by EU anti-fraud body OLAF and another by a special Commission taskforce -- seriously criticized the management at Eurostat but showed no evidence of wrongdoing since Prodi took office.

However, the auditors report is far from conclusive and it is unlikely to be held up as a document that can exonerate Prodi. The report, which examined 400 out of 1,200 Eurostat contracts with outside firms, stated: "Due to a lack of transparency, there is no evidence on whether, how and when the reserves practices were discontinued in 1999 or later."

Prodi told the parliament of his "sadness" at the allegations of slush funds and false contracts and made reference to the dark recent past of the Commission which was plagued by scandals that eventually brought down his predecessor, Jacques Sander (picture), and 19 other commissioners four years ago.

Prodi holds Eurostat chief responsible

The current Commission president reiterated statements made in the recent reports which laid most of the blame at the door of officials outside his EU executive office. Prodi said Yves Franchet, the former director of Eurostat, should shoulder the lion’s share of the responsibility for the scandal. He called the Frenchman’s conduct in the affair "appalling."

He added: "A director general had betrayed the legitimate trust his political masters had placed in him."

Prodi defended his commission colleague Pedro Solbes, the man ultimately responsible for Eurostat from some members of the European Parliament, in the face of calls for the resignation of the EU's economic affairs commissioner saying there were no grounds to dismiss Solbes. "Commissioner Solbes has nothing to personally reproach himself with. I do not question his personal integrity," he said.

Kinnock, Schreyer cleared by boss

Neil Kinnock, the commission vice-president for reform, and Michaele Schreyer, the commissioner in charge of the EU's €90bn ($) annual budget, were also cleared of wrong-doing by Prodi who again publically challenged MEP’s who had called for the two commissioner’s to be held accountable for their alleged involvement.

Although Prodi’s address pledged to right wrongs and seemingly cleared himself and his colleagues of any involvement, others were not so quick to draw any line under any part of the scandal investigations.

"It is premature to arrive at any conclusive judgment," said Pat Cox, the president of the parliament. "This is a sobering reality check that has revealed gaps in governance that will have to be addressed. Trust is essential." Cox refused to call for resignations at this stage of the investigations.

However, others were more direct in their condemnation. “This is a major scandal. Obviously they learned nothing from the past,” said Freddy Blak, deputy chairman of the budgetary oversight committee.

"This is not one crook, two crooks or five," said Jens-Peter Bonde, an MEP from Denmark. "This is a parallel illegal system of financing."

The Eurostat scandal is turning out to be one of the darkest affairs since the member states agreed on the formation of the Union at the Treaty of Maastricht in 1992.

Commission resignation opens investigation

Alarm bells began ringing in the wake of the mass resignation of the European Commission headed by Jacques Santer in 1999. After a scathing report suggesting corruption and mismanagement, all 20 commissioners were forced to step down. This alerted internal auditors at the Commission who began investigating allegations of double accounting and fictitious contracts at Eurostat; illegal actions which were thought to have been taking place under the noses of the disgraced commissioners.

The allegations at the center of the affair surrounded the bosses of Eurostat and suggested that they channelled around €1 million into unofficial bank accounts, away from budgetary controls and that former colleagues, even family members, set up companies that were then given fat contracts from the agency. The recent OLAF report catalogues cases of Eurostat contracts with outside firms that caused losses to the EU. In one case this loss was more than €3 million.

Inflated contracts and filtered funds

The investigations led Eurostat head Yves Franchet and another senior director at the agency to step down in May while continuing to protest their innocence. Two months later, an urgent task force of inquiry was set up at the commission to get to the bottom of the scandal and begin disciplinary proceedings against those involved.

The auditors report, issued on Wednesday, showed that officials at Eurostat were filtering money from artificially inflated contracts into financial reserves to fund activities at the agency from as far back as 1989 and suggests that EU officials, whether past or present, were either party to or aware of the practice.