Mere days after the Eurozone had proposed to levy 10% of bank deposits in Cyprus, the governments of Spain and New Zealand already began making similar noises.
Sure enough, a day after Cyprus finalized its pact with the
Devil Eurozone to confiscate 30-40% of bank deposits that are more than €100,000 ($128,630) for a €10 billion loan in return, a top Eurozone official announced that, if needed, Eurzone will raid the personal bank accounts in other financially-troubled European Union (EU) countries as well.
The Eurozone is an economic and monetary union of 17 EU member states that have adopted the euro (€) as their common currency and sole legal tender.
Bruno Waterfield reports from Brussels for the UK’s The Telegraph, March 25, 2013, that ditching a three-year-old policy of protecting senior bondholders and large depositors (over €100,000) in EU banks, Jeroen Dijsselbloem, the Dutch chairman of the eurozone, told the FT and Reuters that the heavy losses inflicted on depositors in Cyprus would be the template for future banking crises across Europe.
“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 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 deposit holders.
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.’
The consequences may be that it’s the end of story, and that is an approach that I think, now that we are out of the heat of the crisis, we should take.
We should aim at a situation where we will never need to even consider direct recapitalisation. If we have even more instruments in terms of bail-in and how far we can go on bail-in, the need for direct recap will become smaller and smaller.
I think the approach needs to be, let’s deal with the banks within the banks first, before looking at public money or any other instrument coming from the public side. Banks should basically be able to save themselves, or at least restructure or recapitalise themselves as far as possible.”
By “direct recapitalization,” Dijsselbloem means a direct bailout of a heavily-indebted and financially-insolvent EU country by the three-headed Cerberus of the EU, European Central Bank, and International Monetary Fund.
The announcement is highly significant as it signals the mothballing of the euro’s €700bn bailout fund, the European Stability Mechanism (ESM), which Spain and Ireland wants to be used to recapitalize their troubled banks.
The eurozone had been planning to roll out the ESM as a “big bazooka” in mid-2014 that could help save banks and prevent financial turmoil in countries such Spain or Italy, a development that has been delayed by German resistance.
Although last night Dijesselbloem tried to row back from his “contagion” comment, he’d already made his point to countries like Ireland and Spain that had been hoping to access the ESM in order to restructure banks without killing off their financial sector by inflicting huge losses on investors.
Meanwhile, banks are still closed (on “holiday”) in Cypriot, until Thursday. Cypriot President Nicos Anastasiades made happy talk, saying that Cyprus could now make a fresh start after having come a “breath away” from collapse. He also said there would be a criminal investigation into the crisis.
- “Govt confiscates 30% of all large bank deposits in Cyprus,” Mar. 25, 2013.
- “The Left approve of stealing your bank savings,” March 21, 2013.
- “Cyprus copycats: NZ and Spain talk wealth tax on bank deposits,” March 20, 2013.
- “Confiscation of bank deposits: Can it happen in America?,” March 19, 2013.
- “Eurozone confiscation of Cyprus bank deposits: Fallout & Analyses,” Mar. 18, 2013.
- “Unelected Eurozone ministers to confiscate 10% of bank deposits in Cyprus,” Mar. 17, 2013.