Brussels, 26/03/2013 (Agence Europe) - In a general rewind, the eurozone spent part of Tuesday 26 March saying that the raids on savings of over €100,000 held in Cypriot banks and loans to Cypriot banks were a special case, specific to Cyprus, unlike what had been said on Monday by the head of the Eurogroup, Jeroen Dijsselbloem, whose hints to the contrary led to a fall in the shares of struggling eurozone banks.
On EUROPE 1 radio station on Tuesday, Benoit Cœuré, a French member of the ECB Executive Board, said that Dijsselbloem had been wrong to say what he did and the Cypriot experience was not a model for the rest of the eurozone because the situation in Cyprus is of a scale that is not seen in any other country. A spokesperson for EU Internal Market Commissioner Michel Barnier said that people shouldn't say that Cyprus is a model and should be re-used in the same format. She said new prudential bank rules and the introduction of Banking Union would prevent the emergence of the same problems as face the two biggest Cypriot banks, Bank of Cyprus and Laiki (see EUROPE 10814). The previous day, Barnier said that there weren't any other financial systems in the rest of Europe that were like the one in Cyprus and could therefore need the same treatment. He said the situation in Cyprus was exceptional because the bank industry was seven or eight times bigger than the country's GDP.
In an interview with the Financial Times on Monday, Dijsselbloem said that the restructuring or liquidation of struggling banks could become the general rule: “That's an approach that I think we, now that we are out of the heat of the crisis, should consequently take”. Later he clarified his statements by issuing a press release stating: “Cyprus is a specific case with exceptional challenges which required the bail-in measures we have agreed upon yesterday. Macro-economic adjustment programmes are tailor-made to the situation of the country concerned and no models or templates are used”. He told French newspaper Le Monde that people who take risks have to pay the consequences and savers, shareholders and bond-holders of banks should be part of the banks' restructuring.
Under the Cypriot financial bailout, savings of over €100,000 in Bank of Cyprus and Laiki will be raided. For Laiki, which is being wound up, senior lenders will also have to pay up. Given the size of the Cypriot economy, the money markets reacted well to news of the bailout until Dijsselbloem's comments fuelled fears of the same type of savings raid being carried out on other struggling eurozone banks.
The European Parliament and Council of Ministers are looking at legislation to harmonise bank bailout systems across the EU. The European Commission's initial draft would not have spared savings of under €100,000 from being raided, but Barnier's spokesperson said that it wasn't possible to save a struggling bank by using savings of under €100,000 in any case.
On the idea that the Cyprus bank bailouts sound the death knell for direct bank bailouts, the Commission said that work on bank bailouts from the European Stability Mechanism were ongoing and it was hoped they could be concluded before the end of June, as desired by the European Summit. A spokesperson for Euro Commissioner Olli Rehn said hoping that the eurozone would never need to bail out a failing national bank did not mean that agreement on how such a bailout would take place was not being negotiated - referring to Dijsselbloem's comments. (MB/transl.fl)