Eurogroup demonstrates how not to calm fears about Cyprus

Jeroen Dijsselbloem nearly ruined everything.

Good news! Jeroen Dijsselbloem, chair of the group of eurozone finance ministers, nearly accidentally killed the euro yesterday.

In what Reuters blogger Felix Salmon described as a "formal, on-the-record joint interview" with Reuters and the FT, Dijsselbloem managed to suggest that the Cypriot bail-in was, in the words of Reuters' Luke Baker, "a new template for resolving eurozone banking problems".

Dijsselbloem said:

What we've done last night is what I call pushing back the risks… 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.

The tenor of Dijsselbloem's comments certainly suggests he meant them to be generally applied. And, on paper, it's a good ranking of priorities: first you get the bank, which caused the problem, to claw back as much as it can, then you talk to the shareholders and bondholders, who have knowingly taken a risk on the bank's solvency, and then, you talk to depositors. Because depositors are, after all, just people who have loaned money to the bank in a different form; and if they're uninsured, they've always known there was a risk of losing a lot if they bank went under.

Unfortunately, this is precisely the sort of thing that you aren't supposed to say. Because the obvious outcome of explicitly stating that uninsured depositors are considered legitimate sources of funds for the recapitalization of their banks is that uninsured depositors start taking their money out of their banks, particularly in the other eurozone nations where the banks aren't yet out of trouble.

Bank runs are, generally, considered bad news. So it's somewhat unsurprising that shortly after Dijsselbloem's interview hit the press, he released a terse statement walking it back. You could smell the burning rubber from the speed of the u-turn; it reads, in full:

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.

It's hard to know quite what Dijsselbloem was thinking – although Paweł Morski presents an entertaining scenario of his own. But it becomes a bit clearer when you look at his background.

Dijsselbloem is the Netherlands' finance minister, a position he has only been in since 2012. His extraordinary position of power in the eurogroup comes from the standard rotating presidency, rather than any particular competency, and, although his electoral career goes back to 2000, his only other policy jobs have been the leader of a parliamentary inquiry on education reform in 2007 and a post at the agriculture ministry from 1996 to 2000.

The eurozone seems to alternate between the under-elected and the under-qualified, and it's not getting any better.

Jeroen Dijsselbloem, with Christine Lagarde and Olli Rehn. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty
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Can Philip Hammond save the Conservatives from public anger at their DUP deal?

The Chancellor has the wriggle room to get close to the DUP's spending increase – but emotion matters more than facts in politics.

The magic money tree exists, and it is growing in Northern Ireland. That’s the attack line that Labour will throw at Theresa May in the wake of her £1bn deal with the DUP to keep her party in office.

It’s worth noting that while £1bn is a big deal in terms of Northern Ireland’s budget – just a touch under £10bn in 2016/17 – as far as the total expenditure of the British government goes, it’s peanuts.

The British government spent £778bn last year – we’re talking about spending an amount of money in Northern Ireland over the course of two years that the NHS loses in pen theft over the course of one in England. To match the increase in relative terms, you’d be looking at a £35bn increase in spending.

But, of course, political arguments are about gut instinct rather than actual numbers. The perception that the streets of Antrim are being paved by gold while the public realm in England, Scotland and Wales falls into disrepair is a real danger to the Conservatives.

But the good news for them is that last year Philip Hammond tweaked his targets to give himself greater headroom in case of a Brexit shock. Now the Tories have experienced a shock of a different kind – a Corbyn shock. That shock was partly due to the Labour leader’s good campaign and May’s bad campaign, but it was also powered by anger at cuts to schools and anger among NHS workers at Jeremy Hunt’s stewardship of the NHS. Conservative MPs have already made it clear to May that the party must not go to the country again while defending cuts to school spending.

Hammond can get to slightly under that £35bn and still stick to his targets. That will mean that the DUP still get to rave about their higher-than-average increase, while avoiding another election in which cuts to schools are front-and-centre. But whether that deprives Labour of their “cuts for you, but not for them” attack line is another question entirely. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.

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