European commissioners break contracts over the Eurostat financial scandal

European commissioners yesterday stepped up their response to a financial scandal at the statistical office of the European Union, Eurostat, amid fears that the allegations were damaging the reputation of the entire administration of European Commission President Mr Romano Prodi.

Mr Prodi and his colleagues agreed they should break off contracts with Planistat, the company that sold statistics published by Eurostat and is at the heart of the scandal. Contracts with another three firms, CESD, 2SDA and TES, are also being cancelled.

According to OLAF, the European Union's anti-fraud office, which referred a file on Planistat to the French public prosecutor, contracts between Eurostat staff and outside consultants were subject to "widespread looting".

Planistat received €41 million from Eurostat in 1992-2003 and another €8 million from other parts of the Commission.

Senior Eurostat staff are alleged to have created secret bank accounts and to have kept two sets of books to hide their irregular use of Commission funds.

A fortnight ago the Commission began disciplinary action against the director-general of Eurostat, Mr Yves Franchet, and two of his directors. All Eurostat directors have been stripped of managerial responsibility and investigators are questioning other senior managers in a bid to get to the heart of what appears to have been systemic malpractice.

Mr Pedro Solbes, the European Commissioner for Economic and Monetary Affairs, last week assured the European Parliament that the production of euro-zone statistics would not be impaired by the inquiries. That assurance was repeated yesterday by a Commission spokesman.

Mr Neil Kinnock, commissioner in charge of reform and administration, and Ms Michaele Schreyer, the budget commissioner, yesterday sent out a joint letter to their fellow commissioners, with questions to be put to departmental senior management.

The letter describes how investigations at Eurostat have uncovered the practice of creating illegal "financial reserves" by offsetting revenue proceeds against costs. It advises commissioners to check specifically whether such practices "exist or have existed" in their departments.

Mr Kinnock also put to commissioners yesterday a code of conduct to govern the relationship between the Commission and OLAF.

The European Parliament has already criticised the failure of communication between OLAF and the Commission.

Commission officials privately complain that information was passed to OLAF but that OLAF did not alert the Commission to systemic problems in Eurostat.Instead, it spent a long time assembling criminal cases against individuals.

The tensions between OLAF and the Commission have put into the spotlight the role played by Mr David O'Sullivan, the most senior Irish official in the Commission.

As secretary-general of the Commission, he was alerted by OLAF on April 3rd to an inquiry into the datashops run by Planistat but he was not given details and was bound to secrecy.

At the European Parliament last week, Mr Kinnock strongly defended Mr O'Sullivan's record.