Eurozone chief: Yeah, the Cyprus deal could definitely augur future euro-crisis plans

posted at 8:01 pm on March 25, 2013 by Erika Johnsen

Cyprus and the EU-IMF-ECB reached a last-minute bailout deal last night, granting Cyprus a $13 billion in emergency loans while shifting a huge burden onto large depositors shutting down their second-largest bank — but confidence is obviously far from restored, and one of the currency bloc’s major finance ministers confirmed that, heck yeah, if we have to, we’ll definitely use this as a template for other future eurozone banking crises. Oof, via Reuters:

“What we’ve done last night is what I call pushing back the risks,” Dutch Finance Minister Jeroen Dijsselbloem, who heads the Eurogroup of euro zone finance ministers, told Reuters and the Financial Times hours after the Cyprus deal was struck.

“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 recapitalize yourself?’. If the bank can’t do it, then we’ll talk to the shareholders and the bondholders, we’ll ask them to contribute in recapitalizing the bank, and if necessary the uninsured deposit holders,” he said. …

The approach marks a radical departure for euro zone 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 programs. …

“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. …

“It means deal with it before you get in trouble. Strengthen your banks, fix your balance sheets and realize 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.”

Yikes. On the one hand, the No-More-Mr.-Nice-Guy attitude-shift needs to happen in some form, but I doubt that kind of threat hanging over everyone is going to do anything for the euro or its markets. Then again, this is the fundamental problem with perpetually living beyond your means and failing to practice anything even approaching fiscal sanity, and with enabling others to do so: There is no good, pain-free solution. There just isn’t. Everybody is going to have to pay for those decisions, one way or another, to the detriment of economic growth and financial stability.

Meanwhile, back at the ranch


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Bank runs will soon follow.

Curtiss on March 25, 2013 at 8:08 PM

Really ready to go “Ker-plooie”??

LoL…

BigWyo on March 25, 2013 at 8:08 PM

If only Cyprus was a terrorist country..

Obama would give them plenty..

Electrongod on March 25, 2013 at 8:12 PM

I find it amusing that other Euro bankers are going down to Cyprus to try and woo the wealthy Russians to their banks. No idea why anyone (especially those with substantial deposits) would put any money in another Eurozone bank. That would be crazy at this point.

besser tot als rot on March 25, 2013 at 8:15 PM

This whole event was a trial balloon. The EU picked Cyprus, a small country with a small (relatively) debt to trot out the idea of confiscation of personal bank accounts.

Look for other weird ideas for the EU to grab cash directly from select industries and other small country populations.

Socialism has been unleashed.

I think its time to put the Nicolae Ceaușescu “exit” video on continuous loop, just as a reminder to anyone who entertains thoughts of being in absolute power.

BobMbx on March 25, 2013 at 8:15 PM

You can bet the REB is watching and has someone taking notes for him, probably Val.

slickwillie2001 on March 25, 2013 at 8:16 PM

MeanWhile,Banking Holiday Sumpin……….

@Reuters tweeted:
Reuters

Corrected: Cyprus central bank says all banks to remain closed until Thursday March 28, reversing earlier decision for Tuesday opening

2 hours ago from twitter.com by user
========================================

https://twitter.com/Reuters

canopfor on March 25, 2013 at 8:22 PM

This guy seems to have the same moral compass of Jon Corzine of MF Global fame

So if it ain’t on you or in your mattress it ain’t really yours?

Chessplayer on March 25, 2013 at 8:24 PM

World war in the wings. Fer sure. Dominoes.

wolly4321 on March 25, 2013 at 8:26 PM

This presents a great opportunity for non-euro zone banks to step up and woo clients. Because, if this Cyprus haircut happens, folks will withdraw their funds and look for safer havens. Interesting times.

joejm65 on March 25, 2013 at 8:29 PM

Eurozone banks now suddenly more toxic than ever. Liberalism is its own worst enemy.

MrX on March 25, 2013 at 8:35 PM

“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 recapitalize yourself?’. If the bank can’t do it, then we’ll talk to the shareholders and the bondholders, we’ll ask them to contribute in recapitalizing the bank, and if necessary the uninsured deposit holders,” he said.

This is exactly how it should be.

Mark1971 on March 25, 2013 at 8:42 PM

There is no good, pain-free solution. There just isn’t. Everybody is going to have to pay for those decisions, one way or another, to the detriment of economic growth and financial stability.

.
Fifty plus years from now people will look back and ask,

“How could everyone not see Bernanke’s QE as anything other than an act of insanity?”

Everything done since QE1 has only increased the amount of fiscal pain and human suffering which WILL occur.

Bernanke will eventually surpass Hitler as an author of war, famines, suffering and deaths.

The SCOAMF will look like a court jester, in comparison.

PolAgnostic on March 25, 2013 at 8:47 PM

This is exactly how it should be.

Mark1971 on March 25, 2013 at 8:42 PM


And it is exactly how it was before we let the fools among us try to ‘socially engineer’ the outcomes they wanted.

PolAgnostic on March 25, 2013 at 8:49 PM

$85 billion/month monetized here?

Does that worry anybody?

wolly4321 on March 25, 2013 at 9:03 PM

Yes, bernake will be the instrument of what you suggest.

I hope I manage to survive it. Literally.

I’m no economist. But it’s plain to see.

wolly4321 on March 25, 2013 at 9:07 PM

I had the distinct pleasure of being in Europe around the creation of the euro. I couldn’t find a decent meal. No beef hardly at all. Even in Germany. But they were all for tying thier fates together. I remember being struck by how up beat they were. It was going to solve everything.

Then I hit Russia and the bloc countries. Latvia, Estonia, etc. And the poverty smacked me in the face, hard.

I’m not equating the two.

I just remember thinking it seemed like an omen. The gap between false hope and depair was palpable. And visible.

They thought that euro was the end of thier woes. They kept trying to sell me on it. As a traveler, no more grief exchanging currency.

wolly4321 on March 25, 2013 at 9:31 PM

wolly4321 on March 25, 2013 at 9:31 PM

That’s…a fascinating story…you really had a first hand view RIGHT at that time? Holy cow. You must have seen a lot.

Any chance you could expand on them or would be willing to give an interview? I don’t know quite why but your story has seriously intrigued me.

MelonCollie on March 25, 2013 at 10:26 PM

Let me get this straight.
If, after a government pistol whips banks into buying government junk bonds, the government defaults on those bonds, then the money to replace shareholder value up to some degree of capitalization comes from taking the money from depositors???
Now why on Earth could anybody distrust banks operating under such /sarc “Laws”

Now I am not sure if it happened, but in the early stages of the Greek crisis the “plan” was to transfer Swiss accounts of Greek companies and citizens to Greece where the Greek government could get at them. If I was in Europe, I would look for a bank that did not cooperate with that and move my money there.
Anything else is just waiting patiently until the Government decides to help themselves to your money.

jhnone on March 25, 2013 at 10:38 PM

Anything else is just waiting patiently until the Government decides to help themselves to your money.

jhnone on March 25, 2013 at 10:38 PM

Bingo! … and good luck for any bank in the Eurozone to ever get another high dollar depositor. Ever.

AZfederalist on March 25, 2013 at 11:31 PM

AZ, I used to work for a “small business” (almost 500 ‘tho) in St. Pete that had over a million a month in production line payroll . I don’t know what R.P.Scherer had in management payroll, or utility costs (softgel production is somewhat energy intensive) or material costs or outside tooling costs per month (between production and management, I would believe they paid the IRS over $100K/month in withholdings). I am pretty sure that the company would have had to get a loan to be able to pay the bills after the money was illicitly taken from their accounts. Some companies with lower margins are not going to survive.

jhnone on March 26, 2013 at 12:24 AM

This is the beginning of something very bad, I think:

http://www.telegraph.co.uk/finance/financialcrisis/9952979/Cyprus-bail-out-savers-will-be-raided-to-save-euro-in-future-crises-says-eurozone-chief.html

Savings accounts in Spain, Italy and other European countries will be raided if needed to preserve Europe’s single currency by propping up failing banks, a senior eurozone official has announced.

Am I the only one who can see what will happen when everyone else realizes their money is not safe in a bank?

dogsoldier on March 26, 2013 at 8:19 AM

Anything else is just waiting patiently until the Government decides to help themselves to your money.

jhnone on March 25, 2013 at 10:38 PM

We have witnessed governments steamrolling banks to do what the braindead political elites want.

No one’s assets are safe.

dogsoldier on March 26, 2013 at 8:22 AM

European banks are in no shape to withstand a run on deposits with most of them having loan to deposit ratios exceeding 150% with the majority around 200%. That means if 5 people withdraw their cash, the bank is insolvent and will crash opening the door to even more depositor haircuts and further runs and further banks becoming insolvent. The paper that these banks are issuing or guaranteeing in the form of repos, reverse-repos, and CDS will instantly default and the US banks that purchased or guaranteed those CDS will be in serious trouble bringing the contagion to our shores within a few weeks. For loads of up to date financial info and reality check go to zerohedge dotcom

colonelkurtz on March 26, 2013 at 1:29 PM

Meanwhile, back at the ranch…

Did the HotAir memory hole claim another victim?

abobo on March 26, 2013 at 1:30 PM