EU reaches deal on rescuing failed banks

Taxpayers will be the last to step in.

New Statesman
Photograph: Getty Images.

Finance ministers of the European Union have reached a draft agreement on bailing out troubled banks without taxpayers paying the bill.

According to the new deal, shareholders, bondholders and depositors more than €100,000 will shoulder the burden in the event of a bank closure or restructuring.

Only when that is not sufficient will the government step in but taxpayers will be the last to take the burden.

The draft deal will become a policy subject to the approval of the European Parliament.

Following seven hours of late-night discussions, the ministers from the 27-nation EU came up with a blueprint on the bailout plan for troubled banks.

The Dutch finance minister Jeroen Dijsselbloem was quoted by The Guardian as saying: “That’s a major shift from the public means, from the taxpayer if you will, back to the financial sector itself which will now become for a very, very large extent responsible for dealing with its own problems.”

The European banking sector has been affected by the global financial crisis in the recent times. Governments in countries like Cyprus, Spain and Ireland have provided billions of Euros for bailouts.

Taxpayer-funded bank bailouts had caused public outrage across Europe since the financial crisis that began in 2008.

Michael Noonan, the Irish finance minister who chaired the discussions, was quoted by Reuters as saying: “Our aim is to have a common approach throughout Europe so our taxpayers no longer have to shoulder the burden. This establishes bail-ins as the new rule.”