Why everyone should calm down – and be careful when speaking in their second language
The last two days the European media (and markets) were in a state of shock. Eurogroup president Jeroen Dijsselbloem had supposedly said in an interview with the Financial Times and Reuters that the Cyprus bail-in strategy could be a template for resolving banking crises in the future. The result was a truly Europeanized response.
There seemed to be a great consensus that Dijsselbloem was disquieting the markets, that he is unfit for the job, while he was even labeled as ‘chaos crisis manager’. The Süddeutsche Zeitung noted that the inexperienced, agricultural economist Dijsselbloem should ‘choose his words’ wiser.
Dijsselbloem subsequently published a short statement saying:
Cyprus is a specific case with exceptional challenges which required the bail-in measures we have agreed upon yesterday. Macro-economic adjustment programmes are tailor-made to the situation of the country concerned and no models or templates are used.
Four brief points on this whole charade are in order.
First of all, the Financial Times published today the transcript of the interview. It immediately became that Dijsselbloem never used the word ‘template’ or anything like that. Dijsselbloem does not even suggest that depositors in the future should worry that their accounts will be cleared overnight.
What Dijsselbloem did suggest is that in the future banks can no longer rely on governments to bail them out. The idea seems to be that high-risk investors rather than tax payers are to pay when hell breaks loose. This does seem like a new strategy towards the Eurocrisis, and one that is likely to stir some unrest in the markets. However, this does not mean that Dijsselbloem implied the approach Cypriot case is a one-size-fits-all.
Secondly, it should be noted that everyone should please calm down. As one comment on the published transcript on the FT Blog said: “Maybe the journalists and the ‘markets’ should calm down a bit about this: that would be good for everybody.“ Markets react on the basis of half-baked rumours putting disproportionate pressure on EU and government officials. It seems that, increasingly, the job of these officials is to be a ‘market soother’, rather than a being a politician. Indeed, it seems they should be more concerned with how the markets react ad-hoc, rather than with crafting a political solution out of this Eurocrisis.
Ironically, Dijsselbloem’s remarks were precisely about the stranglehold the financial markets have on Europe’s institutions, governments, banks and citizens. Dijsselbloem seems to want to break the causal chain that is currently in place: after market failure (since that’s what it is), governments step in, financial analysts hang on the lips of any EU or government official and cause a weekly dose of panic on the markets.
Thirdly, high ranked governors should have a decent command of the English language. It seems that much of the confusion arose from the fact that Dijsselbloem did not know what ‘template’ meant, as he later admitted to Dutch political commentator Frits Wester (interview in Dutch).
In response to the question posed by the FT and Reuters “To what extent does the decision taken last night end up setting a template for bank resolution going forward?“, Dijsselbloem did not clearly rebut the supposition that the Cyprus deal could be a blueprint for bank resolution in the future. Had he known the meaning of the word ‘template’ Dijsselbloem’s answer surely would have been different.
This, and only this, is truly inexcusable. The president of the Eurogroup, and Dutch Minister of Finance, has to have a certain degree of proficiency in the EU’s most important working language in order to answer normal questions on his decision-making.
Finally, Sony Kapoor, Managing Director of the think tank Re-Define and a much respected voice on the Eurocrisis, has asserted in the Guardian that the Cyprus deal could actually be a ‘template’ for tackling bank resolution. Kapoor said:
[T]he deal provides a template for Europe’s unforgivably delayed bank resolution regime. When the crisis first hit, European lawmakers prioritised passing populist legislation on hedge funds and private equity firms over tackling the root drivers of the crisis which lay in the banking system.
Clearly, there is no consensus on what the Cyprus deal means or will mean for the rest of the Eurozone and the crisis. It is clear, however, that the Eurozone has taken a different tack. Time will tell whether that’s a good or a bad thing…