After Cyprus, eurozone faces tough bank regime - Eurogroup head

[Benton D Struckcheon]

Source: Reuters

A rescue programme agreed for Cyprus on Monday represents a new template for resolving euro zone banking problems and other countries may have to restructure their banking sectors, the head of the region's finance ministers said.

"What we've done last night is what I call pushing back the risks," Dutch Finance Minister Jeroen Dijsselbloem, who heads the Eurogroup of euro zone finance ministers, told Reuters and the Financial Times hours after the Cyprus deal was struck.

...

"If we want to have a healthy, sound financial sector, the only way is to say, 'Look, there where you take on the risks, you must deal with them, and if you can't deal with them, then you shouldn't have taken them on,'" he said.

...

"It will force all financial institutions, as well as investors, to think about the risks they are taking on because they will now have to realise that it may also hurt them. The risks might come towards them."

Read more: http://uk.reuters.com/article/2013/03/25/uk-eurogroup-cyprus-dijsselbloem-idUKBRE92O0IL20130325

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Basically, no more ESM. Euro tumbled on this news, and trading in some Italian banks was suspended as they dropped more than 5%.

[dipsydoodle]

1. Statement may have been taken out of context.

4.51pm GMT

The backtracking begins, with Dijsselbloem's spokesperson confirming the quotes are accurate, but the suggestion Cyprus is a template is apparently taken out of context.

http://www.guardian.co.uk/business/2013/mar/25/eurozone-crisis-cyprus-bailout-deal-agreed

[Benton D Struckcheon]

2. Statement by the Eurogroup President on Cyprus

Cyprus is a specific case with exceptional challenges which required the bail-in measures we
have agreed upon yesterday.
Macro-economic adjustment programmes are tailor-made to the situation of the country
concerned and no models or templates are used.

Riight...

[enlightenment]

3. Fascinating.

I was listening to NPR on my way home today and some spokesperson from Brussels was on, swearing six ways to Sunday that "they" had nothing to do with the decision Cyprus has made to give wealthy depositors "haircuts" by confiscating 30 to 40% of what they have on deposit over the allowed hundred thousand. He said that they only demanded that Cyprus show good faith by raising the money - but they didn't suggest how they should do that.

All this talk - backtracking not withstanding - sounds as if Brussels was very involved in the choice Cyprus made.

[Benton D Struckcheon]

4. They originally ONLY wanted to hit the large depositors,

and were seriously annoyed when they wanted to hit the small ones too, doubtless because of the violation of the insurance limit. To be fair to the much-maligned Merkel et alia, they did realize, from what I can figure out, that you don't go after the insured deposits in a situation like this. You should, however, be able to go after the uninsured deposits, as those people should be sophisticated enough to do the kind of due diligence you need to do to understand whether where you're putting your money is a safe place.
So, whoever that was was either ignorant or was, was, was........well, you know.

[enlightenment]

6. True enough - foolish is as foolish does.

I don't really understand why this scheme is limited to the two banks - well, one bank (since the other will apparently just have assets over 100,000 frozen rather than skimmed - and I don't understand that, either. Why not both banks?).

Are the two banks the only ones that have big depositors?

The protestations of innocence on the part of the Brussels spokesperson was what I found interesting - but then this whole EU meltdown is train-wreck fascinating, overall. It's unjust that the people are the ones who get hosed when it was the governments that decided to take the risk, but such as is was so it will be, and all that . . .

[Benton D Struckcheon]

7. Those two banks are the ones in trouble

...and the origin of the Cyprus mess is Greece: these banks invested the deposits in Greek debt, so of course when Greece went kerflooiee they were in trouble.
Which is my main objection here: this has been known by the eurozone leaders for a long time. Right after putting Greece to bed they should have been working full time around the clock on Cyprus. This should have been solved a long time ago and without anyone being disturbed.

[enlightenment]

8. Ah.

Thanks.

Nasty mess this - is there any hint that the eurozone leaders might have deliberately stalled to create a crisis that would allow them to put the squeeze on the large-money Russian depositors? The rhetoric is starting to look rather Cold War-ish and Putin hasn't been making many new friends lately.

[Benton D Struckcheon]

9. That would be quite a conspiracy theory

If anything, I'd think not, since at one point it looked like Cyprus was going to give away its rights to the known nat gas fields they have just offshore to Russia in exchange for a bailout from them. That would give Russia even more leverage over European supplies of nat gas, which I would think they wouldn't want. Given Cyprus's ties to Russia, someone in the EU should have been able to connect those dots and realize taking Cyprus to the brink might have consequences no one in Europe would really want.
No, I just think this was a deplorable lack of foresight. Everyone knew Cyprus was in trouble because of Greece, and they really needed to solve it before it got to this ridiculous stage.
Which makes me think maybe they didn't connect those dots re the nat gas??? This whole thing reminds me of the Lehman debacle, which actually had its origins in the botched rescue of Fannie & Freddie the weekend before they went belly up. That too was a case of short-term thinking by people whose duty it was to know better.

[enlightenment]

10. I'm not big on tin-foil hat stuff myself -

but the entire Cold War was built around some whoppers, so in politics anything is possible I guess. I agree that this scenario would be far-fetched.

Lack of foresight seems to be the motto of much of the financial world. Given that "high finance" is built on little more than forecasts, wishful thinking and a fair amount of hucksterism, I guess it shouldn't be a surprise.

[Benton D Struckcheon]

5. Tweet from Bloomberg that the banks stay closed until Mar 27 n/t