A look at Dijsselbloem, the new 'Mr Euro'

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Associated Press

Posted on March 29, 2013 at 1:03 PM

Updated Friday, Mar 29 at 1:05 PM

AMSTERDAM (AP) — Two weeks ago, few people outside the Netherlands had heard of Jeroen Dijsselbloem, the Dutch politician instrumental in negotiating Cyprus' bailout.

Now he's being criticized for shaking the confidence of financial markets after he said that investors and depositors, rather than taxpayers, should expect to bear more of the burden of bank bailouts — as in the case of Cyprus.

Here are some questions and answers about the man and the debate he's sparked.

Q: Who is Jeroen Dijsselbloem?

A: Dijsselbloem (pronounced DYE-sell-bloom) in January became the new president of the Eurogroup, the finance ministers of the 17 European Union countries that use the euro The Eurogroup has emerged as a key decision-making organization as the eurozone's debt crisis has evolved. It approves all bailout decisions and is used to discuss reforms to European financial policy. The president's job also carries the unofficial title of "Mr Euro".

Q: Why was Dijsselbloem picked for the job?

A: Before becoming the Netherlands' finance minister in November, Dijsselbloem was a member of the Dutch parliament, with a background in agricultural economics. That's a resume some critics have described as a little thin. But Dijsselbloem won out for the job as a compromise candidate. He is palatable to France because he belongs to the center-left Labor party, and acceptable to Germany because throughout the eurozone crisis, the Dutch government has backed Berlin's push for financial discipline.

Q: What did he say this week to roil markets?

A: After the Cyprus bailout was agreed on Monday, Dijsselbloem said that the deal pointed the way for future bank rescue programs across Europe. A key element of the Cypriot bailout is that bank depositors stand to lose at least half of their savings above 100,000 euros ($130,000).

His comments on Monday were initially interpreted by some to mean that depositors in banks in other financially weak countries, like Spain or Italy, will also face losses if they run into trouble. Financial stocks promptly tumbled across the eurozone.

Q: He actually said that in future bailouts, depositors will also lose their money?

A: Not quite, though he didn't rule it out. What he said, and has since elaborated, is that the Cyprus plan should be seen as part of a trend in which banks will increasingly have to fund their own bailouts, rather than purely relying on governments using taxpayer money.

Q: How will that work?

A: Dijsselbloem says that when a bank gets in trouble, losses should be taken in the following order: first executives should lose their jobs; then shareholders should lose their money. After that, low-ranking creditors such as junior bondholders won't be repaid. Then, senior bondholders and uninsured depositors — those with savings above the eurozone's deposit insurance limit of 100,000 euros — would lose some or all of their money. Only as a last resort would authorities either force insured depositors to take losses or use government money to recapitalize a bank.

But how and when depositors will take losses in a bank bailout remains unclear. When nationalizing the Netherlands' SNS Reaal bank earlier this year, Dijsselbloem made sure shareholders and junior creditors were wiped out, but he spared depositors and senior bondholders. On the other hand, Cyprus' bailout plan initially sought to tax part of insured deposits of less than 100,000 euros. That was seen as tantamount to confiscation of insured deposits, and the decision was hastily revoked.

Q: Isn't it fair to have a bank's investors pay, rather than taxpayers?

A: In principle, yes. Many people would like to see more bank executives, investors and creditors suffer the consequences of their own risky investments. While Dijsselbloem has critics, some people — notably his close ally German Finance Minister Wolfgang Schaeuble — have also praised him for taking this stand.

Q: So what's the problem?

A: Reality. With European governments and banks both burdened with high levels of debt, it's not clear that the European banking system is ready to withstand this new approach to bailouts. Telling investors, creditors and even depositors that their money may not be safe in the bank is a little like shouting "fire" in a crowded theater. It could spark investor flight or bank runs and throw the eurozone back into crisis.

Q: Is what Dijsselbloem said really so controversial?

A: The Dutch pride themselves on plain speaking. But perhaps Dijsselbloem is a little too blunt, given that he's in a job where one wrong word can move markets.

For instance: he has pointed out that government-insured bank deposits are only as safe as the government that's doing the insuring. True, perhaps, but unnerving for anyone living in a country with a disproportionately large banking sector — such as Luxembourg or Malta. Reasonable business owners and savers in Spain and Italy in particular may look at their governments' finances and conclude their money is simply not safe enough.

Dijsselbloem also made the argument that Cypriot depositors were "investing" their money when they put it in Cypriot banks, rather than saving it, because the banks were offering such good interest rates.

Again, that's true in some sense, but pretty academic. Should, say, everyday Germans feel they have to study the balance sheet of Deutsche Bank before they dare to open a savings account there?

Q: So did he do any lasting damage?

A: The jury's still out.

European politicians are divided over Dijsselbloem's position. Countries like Germany and other northern European nations, which have been paying the bulk of the sovereign bailouts throughout the crisis, agree with him.

Others, such as France, southern countries, the EU's executive authorities in Brussels and the European Central Bank's top officials have distanced themselves from him for fear of upsetting financial markets. Some have said his views are plain wrong.

Bank stocks and the euro have stabilized since falling sharply on his initial comments on Monday. Whatever happens next, the financial world will surely be paying closer attention to the Dutchman from now on.

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