"Dijselbloem and the Forty Euro Thieves? - "Cyprus Deal Is A New Template."

"Dijselbloem and the Forty Euro Thieves? - "Cyprus Deal Is A New Template."(IW).

Today, in an interview with Reuters and the Financial Times, Dutch Finance Minister and President of the Eurogroup of euro zone finance ministers Jeroen Dijsselbloem said that the Cyprus deal will serve as a template for future bank restructurings in the euro zone.

Reuters reporter Luke Baker has the scoop:

"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 recapitalise 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 recapitalising the bank, and if necessary the uninsured deposit holders," he said.

European bank stocks are extending their losses today on the news.However, that appears to be somewhat by design.

FT correspondent Peter Spiegel published more comments from the interview with Dijsselbloem that seem to indicate this:

But he said that investor skittishness could ultimately make the financial sector healthier since it would raise the cost of financing for unsound banks.

“If I finance a bank and I know if the bank will get in trouble, I will be hit and I will lose money, I will put a price on that,” Mr Dijsselbloem said. “I think it is a sound economic principle. And having cheap money because the risk will be covered by the government, and I will always get my money back, is not leading to the right decisions in the financial sector.”

In short, though euro area leaders have stressed that the Cyprus deal was a special case, it's becoming increasingly clear in the wake of negotiations that this is the new normal for euro zone bank restructurings.Hmmmm.......Sounds like Government bonds are to become worthless, after they first 'Forced' the pension funds in Europe to invest at least 20% of their assets in Gov Bonds of their country of origin. Read the full story here, more here.

Interesting reading material here.

In our view, two more elements are necessary to stabilize the shaky foundations of the Euro. First, some sovereigns are undoubtedly insolvent. A credible, orderly, bankruptcy procedure for sovereigns that minimizes the risk of contagion is needed.
Second, the financial system of the Eurozone is too fragile and contains too many systemically risky institutions.A Eurozone(wide banking resolution regime,able to prevent contagion and protect European depositors, must be put in place.)