The Cyprus bailout is a disaster for the EU
18.03.13 @ 17:56
BRUSSELS - Cyprus has been forced to apply a levy on ordinary bank deposits of the type that fall under the €100,000 deposit guarantee that is required by a European Directive. This is an upper limit for guarantees, taking away the rights of countries to have a higher one or indeed to have only a 90% guarantee as the UK did in order to keep investors on their toes. This harmonisation was done to keep a level playing field so that depositor money would not flow from country to country at times of scares and cause bank runs.
So the promise was, the first €100,000 is guaranteed. In every bank in the EU. If the Eurozone were a bank it would now be in court for mis-selling.
When reaching agreement on the Directive in December 2008 the Council said the Directive was "aimed at tightening up the rules on bank deposit guarantee schemes in order to improve confidence in the banking sector". It further stated the Directive sought "to ensure better protection for savers" and "to prevent panic reactions by savers if a bank is experiencing difficulties or loses public confidence".
The Euro Area conditionality imposed on Cyprus makes a mockery of EU directives and of the principles solemnly proclaimed by the Council. There is no longer equal protection for savers and confidence in the banking sector in the euro zone has received a body blow.
The lesson here is that the EU's single market rules will be flouted when the Eurozone, ECB and IMF say so. At a time when many are greatly concerned that the creation of the 'Banking Union', giving the ECB unprecedented power, will demote the priorities of the single market, we see it here in action.
What else will be blown apart when convenient - the capital requirements we have slaved over, or the new recovery and resolution rules? What does this mean for confidence in cross-border banking and resolution and preventing the fragmentation of the banking sector?
When the dust has settled on this deal, which I hope it never does, we will see that the single market has been sold down the river. Nothing can ever be trusted again.
It did not have to be this way. The uninsured allegedly 'money laundered' deposits could have taken a bigger hit. Bonds, even if few, could have been slashed. That is the moral order of things. The rules of pooled sovereignty could have been kept. But the decision on Cyprus creates many more problems than it solves.
Ministers should think again.
Sharon Bowles is a Liberal Democrat politician and chairs the European Parliament Committee on Economic and Monetary Affairs. This piece first appeared in British Influence, a new independent advocacy campaign that wants Britain to lead in Europe