XIX. European banking/economy fallout

Draghi Speaks


At his monthly press conference, Mario Draghi, ECB president began to draw up a balance sheet of the Cyrpus bailout.


Acknowledging that the inital planned raid on all depositors across all banks in Cyprus was a mistake he concluded that bailout had to be part of the regulator's and bnank resolvers armory:


“We have to be able to resolve banks without using taxpayers’ money and without disrupting the payment system,” the ECB chief said. “We should ask the question, ‘What makes a bail-in a problem?’ Well, a bail-in by itself is not a problem. It’s the lack of rules, ex-ante rules known to all parties, [the lack of] which can make a bail-in a disorderly event. (FT Steen 5 April 2013)"


Draghi went on to argue that in order to have those ex-ante rules in places the European Commission’s draft bank recovery and resolution directive, which sets out a clear creditor hierarchy, needs to come into force by 2015, rather than 2018 as currently planned. This is a position supported by Germany, Finland, the Netherlands and Denmark.


Draghi argued that the EC's “banking union” plans in which the ECB is set to take over supervisory responsibility for major banks from next year was “absolutely essential”.


He also drew attention to the need for banks to monitor their their funding bases to avert a repeat of the Cyprus situation where too much was concentrated as deposits.

Cyrprus Mail (5 April 2013) reported,


Draghi also rejected yesterday the notion that the ECB bankers wield inordinate power over elected officials, as for example in the case the ECB threatened to cut off Emergency Liquidity Assistance (ELA) to Laiki and Popular Bank unless a bailout programme was agreed.


“We acted exactly within our mandate,” the ECB chief said. “We would have been acting politically if we had not done this. ELA could be extended only to solvent and viable banks. In the absence of a programme, these banks would not have been solvent and viable, and at that time the governing council assessed there was no programme in place [for Cyprus]. On all other occasions, there was a programme in place.”

European Bankers Bill


The FT (Jenkins 5 April 2013) reports on an initial bankers bill for the Cyprus bailout drawn up by a Barclays Bank analyst.


This estimates that the new reality - ie depositor bail ins - will cost Europe's biggest banks €15bn a year.


This will be due to the need to offer depositors greater interest rates as a reward for keeping their deposits with a bank and to a €7bn overhead arising from the cost of implementing the EU plan to pre-finance all national deposit guarantee funds.

Costs of recession in attitudinal change


Useful opinion polls on compatative attidues to worklessness in Germany, France, Britain and the US and the deep pessimism that now informs many European's worldview re the economy - see The Guardian Clark 14 April 2013  and Guardian here also.

To: The Memorandums of Agreement