Spain and contagion from Cyprus

Gideon here’s the interview with Dijsselbloem:

The crux is: “We have to bring down the tab to be picked up by the taxpayers.” The interview also focuses on Spain and that the approach is different, the Eurogroup is already engaged there and has been for quite a while in restructuring banks.

Cyprus was a special case. It has been assuming vast risks since the crisis started in 2008, especially in 2010 and 2011 its banking sector became heavily exposed to Greek debt when instead of shedding it, they started buying it up. The assumption seemed to be that a Greek bail out would rescue them and increase the value of those toxic assets. They took a huge gamble that they assumed northern taxpayers had to pay for either way. The Cypriot government itself went to Moscow to borrow 2,5 billion euros which was pumped into its ponzi-like bubble assuming also they’d be rescued.

Geert Wilders’ PVV is polling as the largest in the Netherlands now. Two factors help his rise, xenophobia and the story above. If Europe had indeed saved those banks and by doing so helped bankers who had gorged themselves on poisoned Greek assets, he would have been able to make an even stronger case. But as is the story already is pretty strong.

Euro nations have to maintain a fine balance between responsibilities, but the primary one is to the electorate. We have to save the Euro and so have to have an acceptable narrative to maintain solidarity with the Eurozone. It’s terribly difficult to explain to an angry electorate why Cyprus needed to be bailed out anyway, and it is just as difficult to explain to angry Euro nations why angry northern electorates insist on stronger measures.

We’ve got to keep the Eurozone together. It’s difficult to see how. Italy’s inability to form a new government follows Greece’s trouble after its elections. To find an accountable political majority willing to shoulder the responsibility is getting increasingly difficult. So far the north has been relatively successful in keeping populists at bay but new rounds of bailouts and rescues are unavoidable and will rankle especially if perceptions remain negative.

Fortunately Cyprus was a wholly unique case.