UPDATE: Check this article on A fistful of Euros for a very comprehensive overview of the matter of the Cyprus-policy rampage itself and all kinds of political validations. I share the conclusion. New Commission now!
http://twentycentparadigms.blogspot.fi/2013/03/is-euro-geddon-nigh.html There is a lot to say about Cyprus’ deal, and haven’t had time to digest all the aspects of the deal. But as said in this fairly comprehensive article it does not look good, in particular because again the banks are not dealt with although many of the eurocrisis’ issues originate from excesses in banks – German, French, Dutch, Irish, Spanish etc. The fact that banks become zombie banks propped up by ECB loans is apparently not bothering the EU elites. I suppose soon people will just hide money in socks again, to escape the unfair treatment deposit holders get, likely every time from now on. Oh and Moody’s or Fitch warned some time ago, in relation to SNS Reaal that it would reconsider the credit ratings all over Europe in case depositor’s money would be confiscated.
Posted in A Fistful of Euros, Economy, EU, Eurocrisis
Tagged A Fistful of Euros, bail-in, bank run, Banking crisis, Cyprus, Dispose this Commission!, EU, Eurocrisis, eurozone endgame, Fitch, Moody's, Olli Rehn, SNS Reaal
This is an interesting story, insofar it relates to a possible coming bailout (Cyprus). Apparently I did not catch the whole significance of the expropriation of the subordinate bonds/participation certificates.
As I posted to this blog a few days ago, the European Commission has temporarily approved the rescue aid for SNS Reaal. But that was to be expected in a sense. More interesting was yesterday’s statement by the Raad van State on whether or not the nationalization was legal. The NRC newspaper reported extensively on this, but again only in Dutch (in English here, on Reuters). In short, the nationalization is legal, and also the expropriation of shares and subordinated (junior) bonds /participation certificates is legal. But the Raad van State clearly states that this would not be legal for future expropriations, if the Dutch State would want to attempt such a thing. The core reason for the legality is the importance of SNS to the Dutch financial system (‘systeembank’).
Another bit of news relates to the FNV labour union federation, which I wrote about here. The same statement by the Raad van State argues that also the expropriation of the loan by FNV to SNS in the process of the nationalization was legal. This means FNV has lost about 20 million euros. The federation wishes to claim damages from the Dutch state but the Dutch Finance minister has announced this will not be honoured (or to be precise – the damages paid will be zero euros.)
http://europa.eu/rapid/press-release_IP-13-150_en.htm Not unexpected, because otherwise the whole excercise would already fall apart. But I hope this state aid will be scrutinized well, because Dutch taxpayers are already big into it from the previous state aid, which is apparently waived?
Today Naked Capitalism features a bit by Delusional Economics on the current state of the Eurozone, or to be precise, the widening gap between Germany and the rest of the Eurozone. It is a pity that Finland is not included in Markit’s PMI measurements, because that could be interesting. The piece focuses mostly on France, as it is arguably the most dramatic case at the moment, but the Netherlands also gets a mention:
The other ‘core’ country that I have expressed concern over in the last few months is the Netherlands. On Tuesday Fitch adjusted the country’s outlook to negative (full text here):
Rating agency Fitch cut its outlook on the Netherlands’ AAA credit rating to negative on Tuesday, citing worries about falling house prices, the banking system and the high state debt burden.
The other major rating agencies, Moody’s and Standard & Poor’s, have already put their Netherlands’ ratings on a negative outlook. The country is one of just four in the 17-nation euro zone to have kept a full set of top ratings.
“The leveraged Dutch economy has suffered a number of shocks,” Fitch said in a statement.
It pointed to a sharp fall in house prices which it said was worse than it had previously expected. Fitch recently revised its projected peak-to-trough decline to 25 percent from 18 percent, and said this will continue to depress household spending.
to the article Delusional Economics mentions and recently I have written a few short bits
on the nationalization of SNS Reaal and the state of the housing market and indebtedness. It is worth the time to read the reasoning by Fitch on the negative outlook, as it says something which seems a bit of an understatement. Fitch states that the following will influence a decision to consider a downgrade:
– Prolonged economic stagnation and rising unemployment
Although the Dutch labour market is quite flexible and at the moment unemployment is not very high, the issue of economic stagnation is a real threat, given how dependent the Dutch economy is on the economic well-being of other countries. But on the other hand, as this article argues
(in Dutch), at the local level there are all kinds of activities to build a sustainable economy. But given that the (until recently) growth of the German economy has not benefited the Dutch economy, it would be good to keep an eye on this little big country.
This song comes to mind regarding the nationalization of SNS Reaal – the Taxman will come to Dutch families to take their euros in order to finance this bank bailout.
The bullet is through the church, or so it is (literally) said in the Netherlands: the nationalization of SNS Reaal, which was expected, is now a fact. The first interesting development is that the Dutch budget deficit increases to 3,3% or in other words: over the limit set by the EU. But Finance minister Jeroen Dijsselbloem says this nationalization was inevitable, because the bank would have gone bankrupt otherwise, and very soon too.
Regarding the junior/subordinate bonds:
Het ministerie van Financiën onteigent de investeerders die achtergestelde leningen hebben gegeven aan SNS Reaal. Dat scheelt de schatkist volgens Dijsselbloem een miljard euro. De Nederlandse banken moeten ook bijdragen aan de overname.
In other words – the Finance ministry disowns the investors that had subordinate loans to SNS Reaal, which apparently makes a difference of 1 billion (shareholders are also not protected). Also the other Dutch banks are supposed to contribute to the nationalization – they have to pay banking fee of 1 billion. But in exchange, they can take more time to fill a fund that is meant to protect the accounts of normal account holders.
I am not sure if this write-down of subordinate bonds is the issue referred to by Fitch, but the whole episode is quite dramatic, especially since the bank received support in 2008 already, and the Dutch financial system doesn’t yet seem any more stable.