Jeroen Dijsselbloem, Dutch finance minister and eurogroup president, has been roundly criticised for suggesting Cyprus marks a new commitment by the eurozone to make bank investors, not taxpayers, bear the burden of future bank failures. If he is prepared to deliver on his promises, he deserves to be cheered, not jeered.
While Mr Dijsselbloem has taken pains to stress that Cyprus is a special case (he never called it a “template”), the general approach has clearly gained standing with rescue-wary core countries. That turnround comes not a minute too soon. Recall that the creditor states, led by Germany, were all too willing to make taxpayers bail out bank investors when the taxpayers were Irish and the investors their own banks, insurers and pension funds. Only months ago, Mr Dijsselbloem used public money to cover losses that should have fallen on creditors in SNS Reaal.
The back story means a pinch of salt is required with Dutch, German and other claims to a born-again appreciation for making investors pay the price of the risks they take on. But if the conversion is genuine, the eurozone banking system faces a better prospect of being cured than in a long time. The market will scrutinise banks to distinguish the strong from the weak, reintroducing proper incentives for management. Those who manage risks well will be rewarded rather than punished for other bankers’ sins.