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| Jeroen Dijsselbloem, Dutch Finance Minister and head of the Eurogroup of euro zone finance ministers |
As
Spanish stocks, led by banking shares, stay in the red for the third
consecutive day after Cyprus secured a European Union bailout, it’s clear that
a certain Dutch Finance minister has made his mark on the mind of Iberian investors.
Eurogroup President Jeroen Dijsselbloem Monday said measures like the levy agreed on big depositors in Cyprus may be one way to go forward to fix future banking crises in the euro zone.
Other EU officials have been correcting him since, to little avail—Spain’s Prime Minister Mariano Rajoy and French President Francois Hollande did it late Tuesday; then, an internal document crafted by the influential Eurogroup Working Group, and seen by The Wall Street Journal Wednesday, states that Cyprus isn’t a “template” on how to deal with future crises.
Cue to Spain’s stock market, last down 1.7% Wednesday. Systemic banks Banco Popular SA and Banco Santander SA , the largest euro-zone bank by market value, are among the worst performers.
There’s a reason why Mr. Dijsselbloem’s threat is credible in Spain and elsewhere in Europe, says George Friedman, the founder and chairman of Stratfor, the U.S.-based private global intelligence firm.
Mr. Friedman notes the Cyprus fix overturns a basic principle of European banking in place since the 1920s—that deposits are, in practice, close to untouchable. In addition, it goes against another basic principle in a monetary union, that one’s savings are as safe in Nebraska as in Hawaii. In brief, nobody believes that EU bailouts are one-offs anymore.
“If Russian deposits can be seized in Nicosia, why not American deposits in Luxembourg?” Mr. Friedman writes in its weekly Stratfor commentary. “At the very least, every reasonable CFO will now assume that the risk in Europe has risen and that an eye needs to be kept on the financial health of institutions where they have deposits.”
Not coincidentally, Banco Popular is the weakest of all Spain’s banks that are not planning to request EU bailout money under last year’s deal with Madrid. At a time when Spanish banks are being pushed to increase their deposits, as a percentage of loans, these concerns don’t help.
The response to this criticism, some have noted, is that deposits under €100,000, those affected by the Cyprus deal, have never been insured and thus always vulnerable to insolvency crises.
The response to that response, scared investors can say, is that in Cyprus depositors are taking a hit without any legal proceedings and no recourse to appeal, rather than as a part of due process. Albert Edwards, a veteran strategist for Société Générale, adds a reminder: that, under the original EU plan, the one rejected last week by Cyprus’ parliament, smaller, insured deposits would have also taken a hit.
“The fact that this plan was originally sanctioned, despite deposit insurance, will have shaken saver confidence to the bone,” Mr. Edwards writes. “It certainly has shaken my confidence.”
Eurogroup President Jeroen Dijsselbloem Monday said measures like the levy agreed on big depositors in Cyprus may be one way to go forward to fix future banking crises in the euro zone.
Other EU officials have been correcting him since, to little avail—Spain’s Prime Minister Mariano Rajoy and French President Francois Hollande did it late Tuesday; then, an internal document crafted by the influential Eurogroup Working Group, and seen by The Wall Street Journal Wednesday, states that Cyprus isn’t a “template” on how to deal with future crises.
Cue to Spain’s stock market, last down 1.7% Wednesday. Systemic banks Banco Popular SA and Banco Santander SA , the largest euro-zone bank by market value, are among the worst performers.
There’s a reason why Mr. Dijsselbloem’s threat is credible in Spain and elsewhere in Europe, says George Friedman, the founder and chairman of Stratfor, the U.S.-based private global intelligence firm.
Mr. Friedman notes the Cyprus fix overturns a basic principle of European banking in place since the 1920s—that deposits are, in practice, close to untouchable. In addition, it goes against another basic principle in a monetary union, that one’s savings are as safe in Nebraska as in Hawaii. In brief, nobody believes that EU bailouts are one-offs anymore.
“If Russian deposits can be seized in Nicosia, why not American deposits in Luxembourg?” Mr. Friedman writes in its weekly Stratfor commentary. “At the very least, every reasonable CFO will now assume that the risk in Europe has risen and that an eye needs to be kept on the financial health of institutions where they have deposits.”
Not coincidentally, Banco Popular is the weakest of all Spain’s banks that are not planning to request EU bailout money under last year’s deal with Madrid. At a time when Spanish banks are being pushed to increase their deposits, as a percentage of loans, these concerns don’t help.
The response to this criticism, some have noted, is that deposits under €100,000, those affected by the Cyprus deal, have never been insured and thus always vulnerable to insolvency crises.
The response to that response, scared investors can say, is that in Cyprus depositors are taking a hit without any legal proceedings and no recourse to appeal, rather than as a part of due process. Albert Edwards, a veteran strategist for Société Générale, adds a reminder: that, under the original EU plan, the one rejected last week by Cyprus’ parliament, smaller, insured deposits would have also taken a hit.
“The fact that this plan was originally sanctioned, despite deposit insurance, will have shaken saver confidence to the bone,” Mr. Edwards writes. “It certainly has shaken my confidence.”
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