Increasing numbers of European politicians would like to see bank shareholders and investors bear a greater share of crisis risk. The EU may be changing its strategy.
Jeroen Dijsselbloem, head of the Eurogroup, merely expressed something that many Europeans already think. Whether at the European Parliament or in several Continental capitals, many are saying that the time is ripe for the financial sector to assume a greater share of the costs for rescuing ailing banks.
'Banks Must Save Themselves'
More is at stake than determining just how to deal with insolvent financial institutions. It is about core tenets of the bailout strategy being followed by the EU. Since the collapse of Lehman Brothers in 2008, it has primarily been EU taxpayers who have assumed liability for the fallout.
A growing number of politicians and experts are demanding an end to this arrangement. In the future, German Chancellor Angela Merkel said, "banks must save themselves". And German central bank board member Andreas Dombret is convinced that the financial sector can only regain health once there are no longer "implicit state guarantees for banks."
Stepping Into the Breach
The banks' lack of sufficient capital has made taxpayers de facto shareholders because they are unfailingly asked to pony up whenever a bank runs into trouble. But unlike the real shareholders, Hau [a finance expert at the University of Geneva] notes, taxpayers are "in no way compensated for this risk".
Including the Creditors
In the case of Cyprus, European leaders have demonstrated for the first time that the burdens can be distributed differently. Forcing private creditors to participate in bailing out faltering banks has, to be sure, triggered worries about the possible flight of capital from ailing countries. However, the financial markets have so far reacted to the conditions set for bailing out Cypriot banks with surprising calm.
Dissent from Luxembourg
Despite major opposition, backers of Dijsselbloem's strategy believe their chances are improving. This has prompted Carsten Schneider, the budget policy expert for the opposition centre-left Social Democrats in Berlin, to call for implementing the rules for winding down banks by 2014 rather than the currently planned 2018.
Dijsselbloem Holds Firm
In the end, however, one must conclude that, while Dijsselbloem's proposal may have been correct, it won't make it easier for EU leaders to resolve the euro debt crisis. On the one hand, the debate is urgently needed to put an end to the banking sector's business principle holding that profits should be privately enjoyed while losses are borne publicly. On the other, the issue threatens to spark new conflicts within the eurozone.
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© Spiegel Online
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