Business World

Saturday 21 April 2018

Eurogroup chief forced into U-turn over future bailouts

As head of the Eurogroup, the Dutch Finance Minister Jeroen Dijsselbloem is the most influential of the euro-area finance ministers and played a central role in talks on the Cyprus bailout.
As head of the Eurogroup, the Dutch Finance Minister Jeroen Dijsselbloem is the most influential of the euro-area finance ministers and played a central role in talks on the Cyprus bailout.
Colm Kelpie

Colm Kelpie

THE head of the 17-strong group of eurozone finance ministers has been forced into a rapid U-turn after suggesting the Cyprus rescue deal was a template for other bailouts.

The comments had cast doubt on Ireland's hopes of getting a deal to claw back around €25bn of taxpayers' money tied up in the bailouts of AIB, Bank of Ireland and IL&P.

They were also interpreted as a warning for investors with more than €100,000 in a eurozone bank to remove it – and by late afternoon shares in Europe had tumbled, while the euro dropped against the dollar.

A short clarification rowing back on the original comments was swiftly issued, in a bid to stem any further losses, although the lasting impression was one of uncertainty.

As head of the Eurogroup, the Dutch Finance Minister Jeroen Dijsselbloem is the most influential of the euro-area finance ministers and played a central role in talks on the Cyprus bailout.

So global investors and the international markets were shocked when he said European taxpayers' money should not be used to bail out banks – and signalled that Cyprus-style raids on bank savings above €100,000 would be the alternative.

He was speaking after eurozone finance ministers approved a €10bn bailout for Cyprus in Brussels that avoids pumping European money into the country's failed banks.

The Dutchman's comments also looked like a major blow to Finance Minister Michael Noonan, who is locked in delicate negotiations to get the emergency fund known as the European Stability Mechanism (ESM) to help pick up the tab.

Mr Dijsselbloem said the aim was for the ESM never to be used.

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

He said that other countries may have to restructure their banks, sparking fears more countries could follow Cyprus by imposing losses on wealthy bank depositors, if banks fail in the future.

European and US stock markets fell following his initial remarks after rising on news of the bailout.

But in a short statement issued last night, the Eurogroup chief rowed back on his earlier comments and said Cyprus was a "specific case".

Adjustment

"Macro-economic adjustment programmes are tailor-made to the situation of the country concerned and no models or templates are used," he said.

And Mr Noonan's Department of Finance said it was still pushing for a deal on our banking debt, in line with an agreement reached last year to separate banking debt from the State's balance books.

The agreement granting Cyprus a €10bn bailout came early yesterday amid pressure from European authorities.

The country will have to dramatically reduce its banking sector – creating a good bank, bad bank model – with some depositors with savings of more than €100,000 taking a significant hit. Those with less than €100,000 will be protected.

karen coleman: p27 editorial comment

Irish Independent

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