Is It Over?

The pumpers are working hard to recover from a sudden shock. Dutch Finance Minister Jeroen Dijsselbloem, who heads the Eurogroup of euro zone finance ministers, announced that the Cyprus strategy was not a one-off, in fact was now the new deal for Eurozone banks.

“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 recapitalize 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 recapitalizing the bank, and if necessary the uninsured deposit holders,”

Oops. As Reuters says: “The approach marks a radical departure for euro zone policy after three years of crisis in which taxpayers across the region have effectively been on the hook for resolving problem banks and indebted governments via multiple rescue programmes.”

This is a matter of political and financial necessity. The taxpayers are fed up with being charged with bailing out irresponsible banking and bankers (especially since the bonuses keep on rolling). But even if they weren’t, there’s too much debt out there on the bank balance sheets for the taxpayers to guarantee. When you’ve got single banks, like for example Deutsche Bank, with a balance sheet for just that one bank larger than the German national GDP and just a sliver of capital, the numbers just don’t work. There are no “safe” banking systems in the Eurozone. Is this the point of realization, when people actually do the nums? We’ll see.

Edit: Green is in sight as the Eurocrats are denying that Dijsselbloem said what he clearly and unambiguously said. Idiots, lying just makes things worse. The Rubicon is behind you. As Ol’ Julius said; “alea iacta est.” How about a little truth: “Folks, too many people have borrowed too much money and they’re not going to be able to pay. We thought for a while that we could just transfer their debt to taxpayers, but that’s not going to work because it is still more than all the taxpayers put together can possibly afford. So people are going to have to cut back on borrowing money, and a lot of folks that are owed money aren’t going to be paid. We understand that this will hurt, but we’ve all being living beyond our means for a long time and we’re going to have to get used to making do with less. We’re sorry we let the situation get so far out of hand, but it is now clear that the economists we consulted were completely wrong about the consequences of so much borrowing. They thought that spending borrowed money would help the economy to grow, and it did to some extent, but the accumulated debts grew faster than the economy and eventually it overwhelmed us. Big mistake, we’ll try not to make it again.”

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