For the second consecutive trading day, European markets displayed signs of increased anxiety. Markets in Italy, Spain and Portugal suffered most. The cause was the EU's announcement that it is preparing a guideline that will require people who hold stock shares, bonds and savings accounts worth more than 100,000 Euros to help bail out the struggling banks that they have trusted with their funds.
Statements made by Eurogroup leader Jeroen Dijsselbloem yesterdy have been confirmed, although the European Comission insists that Cyprus will be a one-off deal. Surely Spain has nothing to do with the Cyprus bailout. Our recovery did not require desposit holders to cover the re-financing costs, the total costs were less and there were more funding resources available to cover financial losses. The EU has no justifiable reason to put the burden on taxpayers and investors in Cyprus. But like other decisions within the EU, leaders could have been more gentle when breaking the news of a new measure. Now we will have to wait and see the actual guidelines to know their wording. EU leaders should have thought more about the effect their words can have. Have they thought about the fact that many small- and medium-sized businesses have more than 100,000 Euros in working capital deposited in the bank?
The coming guidline practically rules out a direct recapitalization of the banks, which means tha the European Stability Fund will be left untouched. This will force European leaders to take banking unity seriously and strengthen independent oversight. A system that puts the responsibility on investors requires rigorous control to assure that the banks function succesfully.
