Introductory Statement by Jörg Asmussen, Member of the Executive Board of the ECB, in exchange of views with the Economic and Monetary Affairs Committee of the European Parliament on financial assistance to Cyprus —

If the sovereign had shouldered these massive recapitalisation needs, debt would have risen to 145% of GDP. This would have critically endangered public debt sustainability. At the same time, traditional ways of burden sharing by the private sector bank creditors were limited, given little junior debt outstanding in banks.

The Eurozone has an effective* traditional way of burden-sharing with non-depositor creditors?

In particular, it was decided to cover the capital needs of the two largest banks exclusively through the own contributions of uninsured depositors and senior and junior debt holders. The creditors of the two banks would not be made worse-off than they would have been in the case of liquidation, which would have been the alternative to the programme. 

The Eurozone has a criterion that bank debt writedowns can be justified as long as the creditors are not worse off than they would have been under liquidation?

If only Ireland had thought of these things in 2010!

[*i.e. that doesn’t endanger debt sustainability]

Central Bank of Cyprus statement last week —

The Central Bank of Cyprus would like to inform the public that all banks will be closed on Monday, 18 March 2013 (Green Monday). 

Green Monday is the start of Lent in the Orthodox calendar. It’s not clear if the Bible referenced stability levies as part of the repentance and self-denial.

The IMF has published its Financial Sector Assessment Program (FSAP) report for the European Union. Usually FSAP reports are done for countries but this one looked at union level issues and institutions. The above is Figure 7 from it. It’s a chart showing a measure of spillover, which the report defines as the probability of a country being in distress given that other countries are in distress at the same time. Their point is that such spillover has been a feature of the Eurozone crisis since the summer of 2008.

Yet there is one strange thing about the figure. It blacks out two of the labels on the chart. But the imperfect blackout allows through various simple means to determine that the two dates that dare not speak their name are that for the Greek debt exchange and the Outright Monetary Transactions announcement. So clearly as the report went through the review stages, someone was sensitive about seeing these dates explicitly. Was it a claim that the data didn’t imply any clear link between spillover and those events, so putting them in looked like over-attribution? Or was it that the data showed too clearly that the Greek debt exchange failed to calm nerves — despite all the assurance at the time that it was a one-time, one country only deal — whereas aggressive ECB policy noises did? You’d think that this far into crisis, we’d at least be entitled to an airing of views.

David Cameron’s big EU speech setting out the policy of an in/out referendum on EU membership after the next election contained a key claim: that a Britain more detached from the EU would be both more business friendly and closer to the people than those statist bureaucrats way off in Brussels. As if on cue, Switzerland came forward this weekend with a test case of what popularly-rooted policies on business conduct in a non-EU European country with a large financial sector might look like: a strong impulse to curb executive pay and bonuses, by all accounts driven by resentment at large bailouts given to — or at least brokered with some urgency for — the banking sector since 2008. Now you could say that this is not really representative of the UK, since it’s driven by the referendum system. Yet accountability was one of the rationales cited in Cameron’s speech for his policy and indeed for his decision to have a referendum. Five years from now.

Of course, the Eastleigh by-election result shows that insulation from populism doesn’t come that easily. And as Martin Wolf points out, it leaves the rest of the EU with one clear entry point to make life difficult for the Tories, by coming forward with policies like those on bankers’ bonuses that are actually popular.  At the very least, it seems that the Tories will have to work to make “business” mean something other than “bankers” over the next few years, before they lose the filter of infrequent parliamentary elections between policies and the people.