Wednesday

20th Feb 2019

Euro chief spooks markets with Cyprus comments

  • Dijsselbloem - drawing conclusions too quickly for markets' liking (Photo: consilium.europa.eu)

Eurogroup chief Jeroen Dijsselbloem on Monday (25 March) spooked markets when he said that Cyprus' bailout is a template for future eurozone bank re-structurings - comments he later modified.

In an interview with Reuters and the Financial Times, the Dutch finance minister suggested that the just-agreed Cyprus deal in which shareholders, bond holders and uninsured deposit-holders will face substantial losses will be replicated in future eurozone bank bailouts.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... or join as a group

“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?" he said.

“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," he added.

Following German pressure that Cyprus should contribute to its €10 billion bailout, much of the money is to come from a so-called bail-in.

Uninsured depositors in the country’s second largest bank, to be wound down, may face 100 percent losses.

Those in Bank of Cyprus, the largest lender, could face a haircut of 30-40 percent.

Dijsselbloem’s comments provoked an immediate negative reaction on financial markets.

By the close of business, the euro was dropping against the dollar amid concerns that large-scale savers - with more than €100,000 in the bank - will move their money out of weak euro countries,

Dijsselbloem later issued a clarification saying that Cyprus is a “specific case with exceptional challenges."

The media interview also appeared to signal the end of talk of using the European Stability Mechanism (ESM), a €700 billion eurozone fund, to directly rescue banks and stop governments taking on the debt.

Ireland and Spain have been holding out for direct bank recapitalisation, also seen as a key plank in the eurozone’s plans for a future banking union.

But according to Dijsselbloem, the likelihood of more bail-ins could mean such a path will never be followed.

"We should aim at a situation where we will never need to even consider direct recapitalisation," he said.

"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,” he noted.

His comments appear to fit in well with thinking in Berlin, where the terms of the Cyprus bailout have been welcomed and which has always been reluctant to see the ESM providing a direct lifeline to banks.

Success of Cyprus deal depends on 'social consensus'

The success of the Cyprus bailout deal will depend on the social consensus around it, says Brussels, with the island's GDP expected to dive as the size of the banking sector is drastically cut.

News in Brief

  1. British PM to batter against EU wall on Brexit
  2. Hungary and Slovakia break EU line on Jerusalem
  3. Germany and France to overhaul EU competition law
  4. Estonia kicks out Danske Bank over money laundering scandal
  5. May and Juncker meet over Brexit on Wednesday
  6. EU promises to open up advisory groups
  7. EU agrees to limit CO2 emissions by trucks
  8. Juncker under attack in Hungary government ad

Opinion

Eastern Europe Matters

The foreign ministers of Sweden, Poland and the Czech Republic reflect on 10 years of the Eastern Partnership with Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine.

Stakeholders' Highlights

  1. Nordic Council of MinistersMilestone for Nordic-Baltic e-ID
  2. Counter BalanceEU bank urged to free itself from fossil fuels and take climate leadership
  3. Intercultural Dialogue PlatformRoundtable: Muslim Heresy and the Politics of Human Rights, Dr. Matthew J. Nelson
  4. Platform for Peace and JusticeTurkey suffering from the lack of the rule of law
  5. UNESDASoft Drinks Europe welcomes Tim Brett as its new president
  6. Nordic Council of MinistersNordic ministers take the lead in combatting climate change
  7. Counter BalanceEuropean Parliament takes incoherent steps on climate in future EU investments
  8. International Partnership For Human RightsKyrgyz authorities have to immediately release human rights defender Azimjon Askarov
  9. Nordic Council of MinistersSeminar on disability and user involvement
  10. Nordic Council of MinistersInternational appetite for Nordic food policies
  11. Nordic Council of MinistersNew Nordic Innovation House in Hong Kong
  12. Nordic Council of MinistersNordic Region has chance to become world leader when it comes to start-ups

Latest News

  1. 'No evidence' ECB bond-buying helped euro economy
  2. Juncker: Orban should leave Europe's centre-right
  3. College of Europe alumni ask rector to cut Saudi ties
  4. EU says Hungary's anti-Juncker campaign is fake news
  5. Trump right for once: Europe should take back foreign fighters
  6. EU should clarify rules for plant burgers and lab meat
  7. Italian populists could be second biggest force in EU parliament
  8. Merkel defends Russia ties, ridicules Trump on cars

Join EUobserver

Support quality EU news

Join us