Last Updated : 26 March 2013 at 14:00 IST
All these days Jeroen Dijsselbloem-- the Dutch finance minister and Eurogroup President-- said that Cyprus was a standalone case, unique in every respects that would not set a precedent in the Eurozone. Then he did a somersault that spooked the world markets:
"If I finance a bank and I know if the bank will get in trouble I will be hit and I will lose money, I will put a price on that," Dijsselbloem said in a joint interview with the Financial Times and Reuters.
"I think it is a sound economic principle. And having cheap money because the risk will be covered by the government, and I will always get my money back, is not leading to the right decisions in the financial sector." he added.
Later on, subsequent to a whirlwind of destructive market reactions, Dijsselbloem issued a clarifying statement, saying Cyprus was "a specific case with exceptional challenges which required the bail-in measures." as per CBS News.
"Macro-economic adjustment programs are tailor-made to the situation of the country concerned and no models or templates are used," he said.
Now, one should understand that Dijsselbloem is no fool. He is a shrewd politician testing the waters. His' are no carelessly worded statements. But carefully crafted statements. So much of work must have gone into it. And its objective? Simple: To study the market reaction when he would say that Cyprus would be considered a template for bailout. Whether there would be bank runs in actual, whether bond yields of the periphery would rise...
So, the trillion Euro question is if this would really be made a template. Probably yes: while the Eurogroup President can play around with words (who said word is fire?), German Chancellor may not have that luxury especially in light of looming elections.
“I think that we were able to achieve a fair division of the burden,” Ms. Merkel said. “We have always said that we do not want taxpayers to save the banks, but the banks must save themselves.”
Now, banks also mean depositors and investors. We have already seen a version of what “the banks must save themselves”mean in Cyprus.
Rest assured: Cyprus is no standalone case, if that is a case, it would be worthwhile to note that the size of the case has just expanded to include the entire Eurozone.
So what is in it for Germany?
As the sneaking feeling of Cyprus being made a template case occupy the depositor's mind, they may simply withdraw money from southern European nations and would be tempted to park it in countries like Germany and Netherlands where it would be 'safe'. May be this is not intentional as that may harm the interests of Germany and Netherlands in the long run.
However, a few questions that lingers are these: Why the fracas now? Cyprus is the fifth country to opt for a bailout. Are they expecting a sixth one? So that a bailout or bail-in precedent could be set? So that the troika could cool their heels and recover from a bailout fatigue? So that there would be no tax payer ire?
If that turns out to be true, millions of investors, depositors, holders and leaders are about to go insomniac.
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