Eurozone dignitaries play with people’s life savings

From left to right: Wolfgang Schauble, German Federal Minister for Finance; Maria Fekter, Austrian Federal Minister for Finance, 24/03/2013. (Council of the European Union photographic library).

The informal Eurogroup and Ecofin meetings in Dublin today and tomorrow will discuss but are not expected to come up with decisions on two burning and closely interrelated financial issues. It is about the relaxation of bank secrecy legislation in certain EU member states like Austria and Luxembourg and the procedures to be followed from now on in failing bank rescues. However the two days meetings will give us a lot of material to contemplate, but will keep us in the dark about almost everything.

Bank secrecy

Even before the meetings some major players in this field, like the German minister of Finance Wolfgang Schauble, came out in the media advertising their negotiation lines. Berlin rushed to remind everybody it had always supported that the European Stability Mechanism should undertake bank rescues only in future cases and not the old ones as in Spain and Ireland. On top of that Schauble insists that in any case the ESM’s implication should be very limited.

As for Austria, the only one EU member state still resisting to relax its bank secrecy laws, the country’s minister of Finance, the outspoken lady, Maria Fekter, amidst a river of accusations against the ‘laundering machines’ of London and Delaware in the US, she concluded that “there are no dead ends in this negotiation” and left to be understood that Vienna will discuss some minor relaxations of the country’s bank secrecy legislation. On this issue a member of the French government commented that that it is unacceptable the 26 EU member states to agree on relaxing their bank secrecy rules and only Austria to resist it.

Who controls our deposits?

Coming back to the discussion over the procedures to be followed from now on in rescuing the failing Eurozone banks, the intervention of the ESM was not included in the proposal for a Directive the Commission presented in June 2012, because the Mechanism didn’t exist back then. This Directive provides for a rescue procedure containing a bail-in of unsecured deposits, which are to be used for the rescue of the bank by being probably transformed into shares. Again in this affair, Berlin, with the aid only of its closest allies, Finland and the Netherlands supports the position that ESM’s intervention should be minimal. In this way everything is still in the air.

Given however that the European Banking Union is to be enacted by early 2014, with the European Central Bank becoming its absolute supervisor, Brussels and Frankfurt want to see in place the institutionalisation of clear and standardised procedures over bank rescues the soonest possible. Berlin though before the September elections in Germany, cannot agree to major concessions regarding the implication of ESM in the rescues. The prospect of the ESM paying a lot of money for bank rescues in ‘sinner’ Eurozone countries is widely rejected by the German public opinion. As a result Berlin cannot agree to such a compromise before September.

In any case the bank rescue procedure is expected to surely contain the use of some part of unsecured deposits as in the two Cypriot banks. The problem is however that such an almost total confiscation of deposits above the €100,000 benchmark cannot become a standard procedure. Now in view of that, apart from the ESM, shareholders, creditors and depositors participation in a bank rescue, it is under discussion also the contribution of national governments with a 10% to 20% of the total rescue cost.

The whole affair though leaves the public opinion completely lost. No government, no Brussels or Frankfurt decision maker comes out to inform the stupefied citizens, if the there is an imminent danger for their deposits. Occasional reassurances do not count. The private sector, citizens and companies alike, have by now grasped that what happened in Cyprus was that depositors were taken by a complete surprise. One morning they were just told that their deposits are blocked and their money will be almost totally confiscated, above the benchmark of €100,000. This fact is now hanging on the air all over the Eurozone. The longer it takes for the authorities to clarify this matter the more difficult will be to restore confidence to the banking sector, if such a thing ever proves possible. It’s like decision-makers play with the trillions of people’s and companies’ savings without telling or consulting them about anything.