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Eurogroup Legitimizes “Bail-In” For Europe

[heading]Eurogroup Legitimizes “Bail-In” For Europe[/heading]

Did you think Cryprus was a “one-off?”

Himagegen.ashx.jpgopefully you didn’t put any money on it, as Eurozone finance ministers agreed over the weekend that freezing accounts was an acceptable way to inject money into struggling banks. The Eurogroup stated in the agreement that “An appropriate level of bail-in will be applied before the bank is recapitalised by the ESM in line with EU State aid rules.”

Enabling the 500bn euro ($660bn; £427bn) European Stability Mechanism to help banks aim to ensure that the European Union won’t fail.  The ESM, now able to inject a total of 60bn euros into trouble lenders, has awarded themselves the privilege to dip into depositor accounts first so that lenders – not national governments- may be made whole.  As BBC writes,

 In addition, the bank’s shareholders, bondholders, lenders and even large depositors, may also have to contribute ahead of any funds from the ESM, a process known as a bail-in.

European technocrats hope that the new agreement comes into effect in late 2014, although many details will still need to be agreed upon.

A major change, nonetheless, has taken place. Heretofore, the ESM could only bail out national governments, not banks. There was precedent for such a move, however, and they can do it with depositor money first. In June 2012, the ESM financed the bailout of Spanish banks, but indirectly, with the Spanish government ultimately on the hook for future bank losses (and of course losses would come).


Making the problem of insolvent banks worse is the fact that most eurozone governments are beholden to the banks, which lend them the money they then for some reason call “legal tender.”

The new banking directive was vague in its parameters regarding what exactly a “bail-in” is, but when Europe’s technocrats do decide, the decision would apply across the whole EU.

So, one-by-one, countries along the periphery of Europe will go bankrupt forcibly trying to bailout international banks at the behest of an EU institution. How many countries will go down this road before the whole of Europe sees the writing on the wall?

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