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The agreement is what is known as a "bail-in", with shareholders and bondholders in banks forced to bear the costs of the restructuring first, followed by uninsured depositors. Under EU rules, deposits up to €100,000 are guaranteed. The approach marks a radical departure for eurozone policy after three years of crisis in which taxpayers across the region have effectively been on the hook for resolving problem banks and indebted governments via multiple rescue programmes.
That process, with governments and taxpayers bearing the costs and providing the back stop, had to stop, Dijsselbloem said. Recent financial market calm meant now was the time to make the change, although he conceded there was some concern that it could unsettle markets again. "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'", he said.
Asked what the new approach meant for eurozone countries with highly leveraged banking sectors, such as Luxembourg and Malta, and for other countries with banking problems such as Slovenia, Dijsselbloem said they would have to shrink banks down."It means deal with it before you get in trouble. Strengthen your banks, fix your balance sheets and realise that if a bank gets in trouble, the response will no longer automatically be that we'll come and take away your problem. We're going to push them back. That's the first response we need. Push them back. You deal with them."
The expectation was that the ESM would be able to recapitalise directly eurozone banks that run into trouble from mid-2014, once the European Central Bank has full oversight of all the region's banks. The goal of the ESM and direct recapitalisation was to break the so-called "doom loop" between indebted governments and their banking sectors. Now, Dijsselbloem says the aim is for the ESM never to have to be used. "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.”
FT/Reuters Dijsselbloem interview transcript © FT
Later statement by Dijsselbloem © European Council