FT Alphaville editor Paul Murphy just published a scathing review of Dutch Finance Minister Jeroen Dijsselbloem’s first major crisis as President of the Eurogroup of euro zone finance ministers, a job he began in January.
Murphy’s conclusion, in short: Fire Dijsselbloem.
(The title of Murphy’s post is “Dijsselbloem, do remember that careless talk costs lives…*” and the first sentence reads, “…and it’s really about time it cost you your job.**”)
The post is mainly a reaction to comments made by Dijsselbloem today in an interview with Reuters and the FT.
In the interview, Dijsselbloem said that the way Cypriot banks are to be restructured per the terms of last night’s bailout deal could be viewed as a template for other struggling banking systems around the euro area, should they eventually have to be restructured as well.
That sent bank stocks in peripheral countries like Spain and Italy tumbling as investors placed bets that the “read-across” from the Cyprus deal to other euro area banks was decidedly negative.
In other words, could Dijsselbloem’s comments Spanish, Italian, and other depositors around the euro periphery to pull deposits from banks in those countries, sparking renewed funding pressures and causing a crisis to flare once again?
Murphy seems to think so. Regarding the Dijsselbloem comments, he writes:
It’s a direct call to depositors across the eurozone — retail and corporate alike — to move cash now and spread it across a portfolio of the largest available banks. It’s direct advice to dump bank debt.
And it’s a direct invitation to speculate that the EFSF, the ESM, and the rest of the alphabetic bailout soup is going to be discarded in favour of calling on depositors’ money across the Continent.
There is an argument to be made that taking the Cyprus approach is good for the euro area because it represents a shift away from saddling the public sector with additional public debt.
Citi Chief Economist Willem Buiter visited this idea extensively in a recent piece, saying that if the Cyprus bailout did in fact signal a change in the way the euro zone conducts bailouts, then it is the best thing that has happened to Europe in years.
However, the Eurogroup has already issued a statement attempting to mitigate the comments made by Dijsselbloem in the interview earlier, saying that the Cyprus deal should NOT be viewed as a template for future bailouts.
The rapid backtracking by the Eurogroup over Dijsselbloem’s comments is interesting because Dijsselbloem himself clearly seemed to be inviting the sort of negative market reaction his comments were bound to inspire.
According to the FT’s Peter Spiegel, Dijsselbloem said in the interview that “investor skittishness could ultimately make the financial sector healthier since it would raise the cost of financing for unsound banks.”
That certainly does sound like an invitation for investors to sell.
Regardless of which side of the argument you come down on – whether or not future restructurings in the euro area should follow the “Cyprus template” – one thing is certain: Dijsselbloem and the Eurogroup have already blinked.
Maybe what the Eurogroup needs is a leader who isn’t willing to back down at the first sign of respite from financial markets.
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