The Corner

Who is Jeroen Dijsselbloem?

He is the Dutch finance minister (and the fairly recently appointed head of the Eurogroup of euro zone finance ministers). Yesterday he caused a sensation (not in a good way) by saying that the Cyprus rescue deal could operate as a template for future bank rescues,

The critical section of the Q&A (which ought to be read in full)  in which this came up was this (my emphasis added):

Q: To what extent does the decision taken last night end up setting a template for bank resolution going forward?

A: What we should try to do and what we’ve done last night is what I call “pushing back the risks”. In times of crisis when a risk certainly turns up in a banking sector or an economy, you really have very little choice: you try to take that risk away, and you take it on the public debt. You say, “Okay, we’ll deal with it, give it to us.”

Now that the situation is more calm and the financial markets seem to have become more steady and easier, we should start pushing back the risks. If there is a risk in a bank, our first question should be: “Ok, what are you the bank going to do about that? What can you do to recapitalise yourself?” If the bank can’t do it, then we’ll talk to the shareholders and the bondholders. We’ll ask them to contribute in recapitalising the bank. And if necessary the uninsured  [ie those with more than EUR 100,000] deposit holders: “What can you do in order to save your own banks?”

Those comments cannot have added to the feeling of well-being among depositors in (and other potential lenders to) weaker euro zone.banks.  Bank stocks fell sharply.

So who is this Dijesselbloem then?

The WSJ explains:

Before becoming finance minister in November, Mr. Dijsselbloem had never held a ministerial position. Little-known even within the Netherlands, he was previously the Dutch Labor Party’s spokesman on educational issues. What little public profile he did have came from his criticism of sex and violence on television and in video games.

So a Tipper Gore is now one of  the most important players in the euro zone financial system. That’s just great.

To be fair, ‘bailing in’ big depositors is not a bad idea. But to announce such a move before so many of the Eurozone’s banks have been properly recapitalized, and at a time when confidence in the single currency is so fragile, is to provoke the fates.  Sure enough, there was quite a bit of backpedalling towards the end of the day yesterday.

That backpedalling has now been backpedalled.

CNBC:

At no point is it possible to bail in depositors under 100,000 euros, either now nor in the future,” said a spokeswoman for Michel Barnier, the European Commissioner in charge of financial regulation. “In the Commission’s proposal, which is under discussion, it is not excluded that deposits over 100,000 euros could be instruments eligible for bail-in,” spokeswoman Chantal Hughes told a regular briefing. “It is a possibility.”

Fox Business:

The European Parliament will demand that big savers take losses if their banks run into trouble, a senior lawmaker told Reuters, adding momentum to a policy unveiled as part of a Cypriot bailout.  

Although some policymakers have sought to portray Cyprus and the losses suffered by depositors at two of its banks as a one-off, many experts believe it marks a dramatic change in tack in how Europe deals with troubled banks, to spare taxpayers who have been on the hook for previous bailouts….Now the likelihood is rising that tough treatment of big depositors will be written into a new EU law, making losses for large savers a permanent feature of future banking crises.

Again, in principle this is a good idea, but the timing…

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