Sahil Patni
At one level the eurozone debt crisis has always been about how losses will be divided. It was good news of a sort, then, that Jeroen Dijsselbloem, the new head of the eurogroup, declared this week that the game would be played in future by easy-to-understand rules. There is now a batting order, announced Dijsselbloem: shareholders in insolvent banks in countries in need of financial rescue will get wiped out first; bondholders will follow; and then uninsured depositors will have to chip in.
Naturally, the eurozone powerhouses arrived at this position in Cyprus in shambolic fashion. Version A, rejected by the Cypriot parliament, would have imposed losses on small depositors, in breach of past promises that sums of up to 100,000 would be sacrosanct. But the final version definitely resembled a textbook formula: small depositors were protected and the financial pain was apportioned according to where a creditor stood in the traditional pecking order of capital.
So tough luck if you are a Cypriot small business, a university or a citizen with a large deposit at Laiki or Bank of Cyprus. You have just been hit by a whacking great levy on your cash. Apparently you should have concentrated less on your day job and spent more time monitoring the health and capital position of your bank.
But does anybody really believe the Dijsselbloem philosophy will be adopted consistently? Of course not. Within a couple of hours an official statement said Cyprus was not a template for anything. The country was a “one-off”, said German finance minister Wolfgang Shäuble.
Almost three years after the first Greek bail-out, the euro’s route to stability and growth looks as uncertain as ever. Apart from Ireland, the periphery countries are hardly any closer to making their economies more competitive and unemployment across the 17 countries stands at almost 12%. If this was a company, the owners would be demanding a break-up just to make the problem easier to manage.
How many more crises can the euro survive? Never underestimate the political will to keep the project alive, they say. Even so, two more small crises or one big one feels about the limit.