European Commission President Romano Prodi took to the defensive on Thursday and resisted calls for resignations of senior staff during an investigation of fraud at the EU’s statistical agency, Eurostat.
 
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.

The German parliament on Friday passed a law bringing about one of the largest reform packages in the history of public health care here. The government’s plan calls for a €20 billion reduction in healthcare spending.

Chancellor Gerhard Schröder’s government succeeded in obtaining a large majority in the Bundestag after critics in his own party threatened to block passage of an expansive healthcare package. In the end, parliament voted 517-54 in favor of the controversial overhaul, the first in a series of tough reforms designed to revive the economy.

Despite fears the coalition government of Social Democrats and Greens would fail to unite on the issue, the parties managed on Friday to establish a majority vote on their own, without requiring the votes of the opposition Christian Democrats to push the legislation through. Debate over the bill had sharply divided members of the government in recent days.

With it’s reform plan, Schröder's center-left government aims to slash billions of euros from German public health costs in an effort to reduce overall non-wage labor costs here, which are among the highest in the world. Economists believe non-wage labor costs make Germany less competitive in the global market and have contributed to the country’s current economic woes, which have placed Europe’s largest economy at the bottom of the heap in growth.

Tough negotiations

Negotiations on the health reform package, which was hammered out with leaders from the conservative opposition Christian Democrats, have tested Gerhard Schröder's mediating skills to the limit. As late as Thursday, the chancellor was forced to do some arm-twisting in order to make rebels within his own party toe the line.

Debate within the coalition became so contentious that Schröder and Franz Müntefering, who heads the Social Democrats' parliamentary group, threatened to disband the SPD-Green Party government coalition if they were unable to achieve a majority vote on their own.

"Whoever believes they can cast a ‘no’ vote here today has no idea of political power and Social Democratic traditions," German public broadcaster ARD quoted Müntefering as saying.

The bill calls for public health spending to be reduced by about €20 billion within the next four years, largely by chopping down special benefits like sick pay and coverage for expensive dental work. But a handful of members of parliament in Schröder's coalition of Social Democrats and Greens objected to the bill, saying it would be socially harmful because the cuts will hit low and medium wage earners especially hard.

"The main problem is that a majority within our party consider the reforms socially unjust," a Social Democratic member of parliament said. "They have the impression that the party leadership is lacking political orientation."

SPD and Green critics of the bill said it would place an unfair burden on patients – with the majority of the cuts, €17 billion, to be shouldered by individual, and only €3 billion to be picked up by the health industry.

But prominent Social Democrats defended both the bill and the compromises made with the Christian Democrats necessary for its passage. Gudrun Schaich-Walch, the deputy chairwoman of the SPD’s parliamentary group, said it was necessary to lower insurance premiums in order to maintain a high-level of healthcare. "We’re doing these reforms so that all insured people have access to what’s medically necessary," she said, adding that the compromise reached with the opposition had been difficult but "fair."

In the end, the government prevailed over its internal critics. Only six SPD parliamentarians voted against the measure, and none of the Greens said "no" to the reform.

Internal strife

Failure to muster a parliamentary majority of its own in the 603-seat Bundestag would have come as a major blow to the center-left government. The health reform bill is only the first of 11 pieces of legislation to be brought into parliament this autumn as part of Schröder's Agenda 2010 reform platform.

In the past Schröder has threatened to resign if his party refused to follow him in parliament. The chancellor is said to have avoided this tactic on Thursday, but reports said he warned members of parliament of the consequences of a loss of momentum in the reform process.

Speaking to reporters after the vote, Schröder’s spokesman Bela Anda said, "The chancellor does not threaten to resign. But he emphasized the importance of the Agenda 2010 measures being passed with an own (meaning SPD-Greens) majority."

"It is important not only for the health care reform vote today but also for further votes down the road on Agenda 2010 reforms," he said.

The bill still requires approval from Germany's upper legislative chamber, the Bundesrat, but that body is expected to pass the law as soon as mid-October.

International Breaking News

Suspected East German Assassin Arrested
Germany may be experiencing a new round of cuddly nostalgia about everyday life in East Germany, but memories of its darker side have resurfaced following the arrest of a suspected member of the regime’s assassin squad. >>>

German States Move To Enact Headscarf Bans
Germany’s highest court confirmed the right of a female Muslim teacher to wear a headscarf in the classroom, but also said states could choose to enact legislation banning the same. That’s exactly what many plan to do.  >>>

High Court Rules Headscarves Okay for Teachers
Germany’s highest court on Wednesday confirmed the right of a female Muslim teacher to wear a headscarf in the classroom. The move lays to rest a long-standing row in Germany, that has caused controversy all over Europe.  >>>

A Look Inside Germany's Healthcare Reforms
In the first of several larger reforms, German parliament has passed a major healthcare package calling for patients to shoulder more of the country’s growing medical costs. DW-WORLD looks at the law's main points.  >>>

Belgium Drops War Crimes Cases
Belgium’s highest court threw out war crimes cases against George Bush and Ariel Sharon on Wednesday, citing the lack of a legal basis. The move will likely reduce diplomatic tensions between Brussels and Washington.  >>>

Texts of Leaders' Speeches Before the United Nations
Read the entire transcripts of UN Secretary General Kofi Annan, German Chacellor Gerhard Schröder, U.S. President George W. Bush and French President Jacques Chirac's speeches before the United Nations General Assembly.  >>>

Battered, Fried, Flipped: The Cultural Legacy of Junk Food
As the modern world continues its saucy and long-standing love affair with fast food, a Berlin museum has whipped together a feast of alimentary icons in an exhibition which explores the social phenomenon of junk food.  >>>

Beethoven Enters the Modern Era in Bonn
Classical music fans from around the world are descending on Bonn, Germany, for the annual Beethoven Festival. But festival goers expecting to hear Beethoven’s classics are in for a surprise.  >>>