Monthly Archives: March 2013

Dijsselbloem, centre, at a press conference Monday announcing the €10bn Cyprus bailout.

The joint FT-Reuters interview with Dutch finance minister and eurogroup president Jeroen Dijsselbloem after the all-night talks to secure Cyprus’ €10bn bailout has caused a lot of discussion and debate. Dijsselbloem issued a statement after we published saying Cyprus is “a specific case with exceptional challenges” and that “no models or templates” will be used in the future.

To clarify what Dijsselbloem said, we’ve decided to post a transcript of the portion of the interview dealing with how the eurozone might deal with bank failures in the future in light of the Cyprus example.

The interview we conducted alongside Brussels bureau chief Luke Baker of Reuters lasted about 45 minutes, and the portion on bank resolution lasted for about 10 of those minutes. The interview started out with some Cyprus-specific questions – like how capital controls might work, whether Dijsselbloem had learned any lessons form the Cyprus experience – and then shifted to a discussion about whether north-south relations were hampering EU decision making.

That’s when Baker asked the first question about whether Cyprus set a precedent for future bank rescues:

Q: To what extent does the decision taken last night end up setting a template for bank resolution going forward?

A: What we should try to do and what we’ve done last night is what I call “pushing back the risks”. In times of crisis when a risk certainly turns up in a banking sector or an economy, you really have very little choice: you try to take that risk away, and you take it on the public debt. You say, “Okay, we’ll deal with it, give it to us.”

 

The EU's Rehn, left, with Cypriot finance minister Sarris at the outset of Friday night's meeting

With the eurozone’s €10bn Cyprus bailout now laid waste by the country’s parliament, the recriminations are likely to begin almost immediately. In fact, they started even before the vote was held — almost as soon as it was announced early Saturday morning that the programme included a 6.75 per cent levy on bank accounts under €100,000.

Since then, almost all officials involved in the talks have said it wasn’t their decision to seize deposits from small savers.

Wolfgang Schäuble, the German finance minister, was the first out of the gate, telling public broadcaster ARD on Sunday that it wasn’t his idea. “We would obviously have respected the deposit guarantee for accounts up to €100,000,” Schäuble said. “But those who did not want a bail-in were the Cypriot government, also the European Commission and the ECB, they decided on this solution and they now must explain this to the Cypriot people.”

That statement sparked anger over at the ECB, which denied any involvement in levying smaller depositors. “I want to emphasise that it wasn’t the ECB that pushed for this special structure of the contribution which has now been chosen. It was the result of negotiations in Brussels,” Jörg Asmussen, the ECB executive board member who handled the central bank’s negotiations Friday night, said Monday. “We provided technical help with the calculations, as always, but we didn’t insist on this special structure.

This morning, Pierre Moscovici, the French finance minister, added his name to the list, saying he had been in favour of exempting smaller depositors “from the beginning”.

So where does the truth lie? We pieced together the events of Friday night and Saturday morning for Monday’s dead tree edition of the FT, but it appears more forensics might be needed to get this all straight. Having talked to multiple participants, here’s an even more detailed account. 

Reding, far left, and Orbán, second from right, during a 2011 Commission meeting in Budapest.

For Viviane Reding, it appears that any opportunity to step into a hornet’s nest is a good one. This time around, the media-savvy EU justice commissioner has seriously upset the Hungarian government after she questioned the independence of the judiciary in the EU member state.

In an interview in the German daily Frankfurter Allgemeine Zeitung, Reding said the recent moves by the government of prime minister Victor Orbán to amend the Hungarian constitution in ways Brussels finds questionable made it understandable that Ireland had refused to extradite an Irish citizen convicted of killing two Hungarian children in a 2000 car accident.

Budapest didn’t appreciate Reding’s remarks, prompting a tart letter from Tibor Navracsics, Hungary’s deputy prime minister in charge of justice affairs, which called her assertions “outrageous and absolutely unacceptable” and requesting she “kindly refrain from making public statements that lack sufficient grounds as well as general benevolence”.

Both Reding’s remarks and the full text of Navracsics’ letter after the jump… 

International lenders agreed to a €10bn bailout of Cyprus early Saturday morning after 10 hours of fraught negotiations, which included convincing Nicosia to seize €5.8bn from Cypriot bank deposits to help pay for the rescue, a first for any eurozone bailout.

The cash from Cypriot account holders will come in the form of a one-time 9.9 per cent levy on all deposits over €100,000 that will be slashed from their savings before banks reopen Tuesday, a day after a Cypriot holiday. An additional 6.75 levy will be imposed on deposits below that level.

Cypriot finance minister Michalis Sarris said his government had already moved to ensure deposit holders could not make large withdrawals electronically before Tuesday’s open; Jörg Asmussen, a member of the European Central Bank executive board, said a portion of deposits equivalent to the levies would likely be frozen immediately.

“I am not happy with this outcome in the sense that I wish I was not the minister that had to do this,” Mr Sarris said. “But I feel that the responsible course of action of a minister that takes an oath to protect the general welfare of the people and the stability of the system did not leave us with any [other] options.” 

Brussels bloggers Peter Spiegel and Josh Chaffin sum up two days of summitry in Brussels in which EU leaders grappled with Europe’s ongoing economic malaise and its arms embargo in Syria.

Monti, right, and Hollande, centre, with Belgium's Elio Di Rupo during Day 1 of the summit

For all the pre-summit posturing over the eurozone’s increasingly controversial austerity-led crisis response, participants said the EU summit’s first-day session on Europe’s economy was a staid affair with almost no real debate over whether EU policy was on the wrong track.

Indeed, the summit’s communiqué, issued after the summit broke at about 10:30pm, was almost identical to early drafts circulated late last week, even though some predicted a tense discussion over its advocacy for more targeted government spending.

Instead, a different theme appeared to emerge from several leaders in the wake of the thumping taken by Mario Monti, the outgoing Italian prime minister who implemented many of the Brussels-recommended reforms, in last month’s elections: EU policies are still correct, they’re just taking longer than expected to produce results.

“The period Mario Monti was prime minister was a very brief one,” said Angela Merkel, the German chancellor, when asked of the lessons of the Italian vote. “Adopting reforms and the reforms taking effect, there’s a period of time for the benefits to be reaped.” 

Brussels bloggers Peter Spiegel and Joshua Chaffin discuss the unexpected Anglo-French push to lift the arms embargo for Syrian rebels fighting the Assad regime.

 

Hollande made clear his Syria position had hardened in his remarks heading into the summit

Will a debate on Syria hijack this seemingly uneventful EU summit? That is certainly the Anglo-French plan. Foreign ministers discussed it only a fortnight ago and there was no mention of Syria on today’s formal summit agenda. But Paris and London have nevertheless decided to bounce their counterparts into a potentially fraught review of the sanctions regime.

Although Britain has been pushing the line for weeks, it France’s president François Hollande who fired the opening shot at the summit, making clear his position had hardened. The message: it is time to change the sanctions regime to allow Paris and London to arm Syrian rebels fighting the the regime of Bashar al-Assad. 

Here is our main news story on FT.com

European leaders arrived in Brussels on Thursday for a summit where the intensifying debate over the austerity-led response to the eurozone crisis was moving to centre stage even though the gathering was not expected to change the EU’s economic policy course.

 

Malta's Joseph Muscat arrives at the EU summit

Finally the Socialists are talking. Most of the early arrivals to the pre-summit gathering of the Party of European Socialist in Brussels said next to nothing. The only statement from Danish prime minister Helle Thorning-Schmidt was a striking neon apricot jacket. Joaquin Almunia, the EU competition commissioner and former Socialist candidate for Spanish prime minister, just gave a “buenos Dias” to the throng of journalists.

So it was with some relief that the newly elected Joseph Muscat of Malta broke the silence with a call for “common sense” on economic policy. On the day to his first summit, he said the magic balance was ensuring that “good economic governance” does not “stifle growth”. It is hardly controversial. But the tone and indeed the arrival of a newly elected socialist gives a small taste of the shifting political mood in parts of Europe.