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Wednesday, 20 March 2013

Cyprus: Has this been Dijsselbloem’s fatal mistake or was it just a false start in a further successful career as chairman of the Eurogroup?!

In politics there is one golden rule. After you have left an important political job, you must never speak negatively about your successor. It doesn’t matter whether he or she does this job totally different than you did before, you hold your peace about it. That is how it always has been and how it always should be.

Today, Jean-Claude Juncker didn’t obey this unwritten law of politics. The former chairman of the Euro-group and long-term Prime Minister of Luxemburg told in an interview with Austrian newspaper ‘Der Standard’ that his successor, the Dutch Finance Minister Jeroen Dijsselbloem, messed up in the Cyprus case. This was an almost unprecedented tell-tale signal, which showed the bewilderment and desperation that Juncker must have felt about this political false start by Dijsselbloem.

Today, Reuters wrote about this developing story:

For Jeroen Dijsselbloem, the new face of the euro zone, a furore over a decision to hurt savers in Cyprus has been a baptism of fire in his role as chairman of the Eurogroup of finance ministers of the currency area.

After just his third meeting in the job, the Dutch minister faces accusations of failing to anticipate the wrath that a confiscatory levy on small savers would spark, risking a rejection by the Cypriot parliament that could plunge the euro zone back into crisis.

Insiders who attended the talks said German Finance Minister Wolfgang Schaeuble and Asmussen, a fellow German, had called the shots while the 46-year-old chairman, a minister for just four months, was too inexperienced to carry much weight.

"There is a realisation, a frustration, that countries outside the troika (European Commission, European Central Bank and International Monetary Fund) and Germany are becoming bystanders in these crucial Eurogroups, and Dijsselbloem is just going along with that, cementing that reality," said one diplomat from a small euro zone country.

Dijsselbloem's predecessor, veteran Luxembourg Prime Minister Jean-Claude Juncker, who relinquished the role in January after more than eight years, made clear his disapproval in an interview with an Austrian newspaper.

"It was the first time I wasn't in the Eurogroup. I would have wished for a more gentle approach to small savers," he told Der Standard daily.

You could argue that it is not very sophisticated to talk about your successor in such a way. However, Juncker has a good point, in my opinion.

What has been worse in Dijsselbloem’s ‘baptism of fire’, is stated in the red and bold text: Schäuble and Asmussen called the shots and Dijsselbloem stood by like a little boy. 

The previous description is almost a small sketch of the every-day situation in the Euro-zone: Germany and the troika (European Commission, the ECB and the IMF) call there all the shots and the other Euro-zone countries are treated like little boys too. The anonymous comments of the diplomat (second red and bold paragraph make the frustration of the other Eurozone countries almost palpable.

This is – to say it sweetly – an undesired situation, which will irrevocably lead to irritation and perhaps even hostility among the members of the Euro-zone. 

Unfortunately, Dijsselbloem is not yet the man to do something about this, although this is desperately needed at the moment. Hopefully, this will change after he found his rhythm as chairman of the Euro-group.

Euro-group chairman Dijsselbloem has currently three handicaps:
  • Dijsselbloem is still a very inexperienced minister, who didn’t have the chance yet to develop his own ‘soundtrack’ and stature. This makes him an easy target for people with more experience in the Euro-zone field, like Schäuble and Asmussen at one hand and a semi-populistic bawler like PM Mark Rutte of The Netherlands on the other hand. These people are overpowering Dijsselbloem currently and he doesn’t have the stature yet to tell them that they should keep their mouths shut;
    • With a few ‘well-chosen’ sentences, Rutte turned Cyprus into an exclusive robbers’ stash for the Russian mob, denying the fact that also a lot of normal and honest people have been keeping their life-savings there. This and other populist chit-chat turned Cyprus into a second-rate country within the Euro-zone, that wasn’t worth saving from the beginning; 

  • During the years of the credit crisis, The Netherlands has almost exclusively stuck to the German line of (forced) frugality and monetary restraint, as this has been in the best interest of Germany and The Netherlands. However, this policy has almost never been in the best interest of especially the southern euro-zone countries and Ireland: the PIIGS. In the coming months, the latter countries will look at Dijsselbloem with hardly hidden mistrust, especially after last weekend’s adventures;
  • Due to his lack of experience, Dijsselbloem did not have the instinct to smell the trouble in last weekend’s decision. He has made a number of grave mistakes in the eve of the Cyprus meeting:
    • He started by saying that the Euro-zone did not want to spend more than €11 billion on Cyprus, instead of the €16 billion that was really needed to save the banks of this very small country;
    • After this, there was no turning back. He had to find almost €6 billion in money for funding the Cypriot banks, on Cyprus itself. The only place to look for this money were the deposits of the savers at these banks;
    • He failed to involve the Russians in advance, although he knew that they were in play. If he had done so, he could have found a solution that was borne by both the Euro-zone and the Kremlin. This would have made his job much easier.
    • The meeting itself started ill-starred: He sent a last minute invitation for this meeting, using Twitter (!). This fact enormously annoyed some visitors of this meeting;
    • Subsequently, Dijsselbloem allowed a thoughtless solution, litterally found overnight, to be presented to the press. He didn’t take the time to think of the grave consequences of this decision: both the potential panic on Cyprus itself and on the financial markets have been totally neglected by Dijsselbloem; 

Today, a decision has been made by the Cypriot parliament that could be a blessing-in-disguise: the Cypriot MP's almost unanimously ditched the Dijsselbloem plan for the bail-in of the deposit holders of the Cypriot banks.

I hope that Dijsselbloem is now so smart that he does not stubbornly stick to his plan, against all odds, while being afraid to lose his face.

He should seize the moments that he has left and come up with a better plan, which does not harm the small savers of Cyprus. Perhaps, he should get in touch with the Russian finance minister now to discuss a plan that keeps the financial damage of the Cyprus bank affair as limited as possible.

If he manages to come up with a viable solution very soon, then the Cyprus affair will be a small scratch on a further successful career as chairman.

If he doesn’t, Cyprus might soon be the end of the road for Jeroen Dijsselbloem.

However, I have confidence that Dijsselbloem might find the best solution. Like I told you before, I voted for the guy during the last elections!

1 comment:

  1. Theft and baptism shouldn't go together.