EU Economic and Monetary Affairs Commissioner Olli Rehn warned on Sunday against a Cypriot exit from the euro zone and said all countries in the single currency bloc were systemically important.
"Even if you come from a big EU country, you should be aware that every member of the euro zone is systemically relevant," Rehn was quoted as saying in Der Spiegel - a thinly veiled criticism of German Finance Minister Wolfgang Schaeuble, who has questioned whether the tiny island is systemically relevant.
"If Cyprus becomes disorderly insolvent, it is very likely that would lead to it exiting the euro zone," Rehn added.
He said euro zone countries' promise to do everything to keep the 17-nation currency bloc intact had calmed financial markets and added that this success should not be jeopardised.
The Eurogroup of euro zone finance ministers will discuss a bailout for Cyprus at its meeting in Brussels on Monday. The island needs 8-10 billion euros to recapitalise its banks and 7 billion to repay loans and finance government operations.
European policymakers are split over how to handle a bailout of Cyprus, with Germany and some other countries pushing for bank depositors to bear part of the cost and many other member states worried such a move will cause a bank run.
Rehn said the EU Commission was against a haircut, or imposed losses on Cypriot banks and savers.
"We are not striving to involve savers. I am sure we can find a solution which accommodates the doubts of all euro zone countries," he was quoted as saying.
Rehn also said Europe needed to stick to austerity measures in spite of calls after a deadlocked Italian vote to spend more to encourage growth.
"Given that, on average, debt exceeds 90 percent of gross domestic product in the EU, I don't think there's any room for manoeuvre to leave the path of budgetary consolidation," he said.
"We won't solve our growth problems by piling new debt on top of our old debt."
He said the French government needed to consider how to bring its excessive public spending under control, adding that the euro zone's second biggest economy had so far had focused too much on raising taxes rather than making spending cuts.
(Reporting by Michelle Martin; Editing by David Cowell)