Cyprus to shape future euro bank rescues: Eurogroup head

Reuters ^ | 3/26/13 | Luke Baker

[EBH]

A rescue program agreed for Cyprus will serve as a model for dealing with future euro zone banking crises and other countries will have to restructure their banking sectors, the head of the region's finance ministers said.

The approach would mark a radical departure for euro zone policy after three years of crisis in which taxpayers across the region have effectively been on the hook for resolving problem banks and indebted governments via multiple rescue programs.

"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 on Monday, hours after the deal was struck.

"If there is a risk in a bank, our first question should be 'Okay, what are you in the bank going to do about that? What can you do to recapitalize 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 recapitalizing the bank, and if necessary the uninsured deposit holders," he said.

[Longbow1969]

You don’t know what you’re talking about.

Actually I know exactly what I am talking about. I didn't say this this was a wonderful solution, I said it was better than the alternative. I explained to people like yourself, who obviously have no clue what they are talking about, why this resolution got some things right.

Thanks for siding with govt seizures of wealth to “solve” public-sector deficits. Why are you defending this overt state interventionism?

As opposed to what? You do realize the other solution was seizing money from the taxpayers to bailout the banks, right? You do understand that the banks had failed and without some extraordinary action they would simply fold and everyone would lose everything. So are you for a taxpayer funded bank bailout instead? Do you even understand that doing nothing wasn't an option? Cypriots may not like this solution, but the government would have immediately collapsed if it had done nothing and the banks were allowed to simply implode. You do understand that the vast bulk of depositors (100K Euro and less) will not lose anything with this resolution. And no, Cypriots are not willing to default and leave the EU - and that wouldn't have helped them with the immediate problem of collapsed banks.

No one is saying this is a terrific outcome, only that is has some better features than past bailouts. This solution finally holds bank share and bondholders responsible. If you are invested in the "bad" banks (Marfin-Laiki), you are probably completely wiped out. That is how it should be. If bank share and bondholders (aka "banksters" as they've come to be called) know they could lose everything, they may start demanding the their banks adhere to more rigorous standards. This solution also treats different banks differently, which is something that should have been done all along. Uninsured depositors in the worst, most irresponsible banks will lose the most money.

[Longbow1969]

Why not have the politicians do the perp walk, plus, cut down on all the state spending to unions, corporate welfare seekers, rent seekers, etc. to solve this problem?

How does that solve the immediate bank problem? The banks were imploding, do you not get that? Arresting all the past irresponsible politicians that Cypriots had voted for over the years is a great idea, but it isn't going to solve the immediate issue. Do you even know that this current government was just elected in February and is from the conservative party? What good would arresting him do?

Apparently you have not read my past comments that blast the irresponsibility of the Cypriot voters for electing corrupt governments again and again that overspent, ran up huge debt, built an unaffordable public sector, allowed the banks to become shot through with corruption, etc. I am one of the few people that directly blame the voters instead of conjuring up nefarious conspiracy theories involving neo-cons, the Bilderberg Group, etc, to explain how Europeans arrived at this sad point in their history. Everything that is happening here is ultimately the result of voters that put spendthrift politicians in power who tried to maintain an unaffordable social welfare state (we're not so far behind Cyprus ourselves). Pointing fingers now won't fix the banks though. This wasn't a wonderful solution, but it was better than past bailouts - which has been my point all along.

[Longbow1969]

Why are you siding with taxpayers on the supply (filers) side, yet not siding with asset holders who are now “defacto” taxpayers preyed upon BY THE STATE?

When banks fail, the shareholders, bondholders and uninsured depositors of that bank are SUPPOSED to be the ones to take the biggest hit. What are you not getting about that? If you invest in a company and it goes belly-up, you lose your shirt - not other people who weren't invested in it. We shouldn't be bailing out bank bond/shareholders. And uninsured depositors should count themselves lucky they are only taking a haircut instead of losing everything.