ATHENS: European Union rules to shield taxpayers from having to rescue ailing banks should be applied flexibly because of broader economic imperatives highlighted by the latest Greek rescue package, analysts and lawyers say.
That flexibility may mean that European taxpayers cannot be given cast-iron guarantees that they will not be called upon again to bail out banks as during the financial crisis. Euro zone finance ministers this month agreed an 86 billion euro ($98.6 billion) third aid deal for Greece which includes 25 billion euros for plugging capital gaps at the country’s banks.
The banks’ senior bondholders will be “bailed in” — seeing the value of their investments written down — but depositors will be protected to avoid harming the wider economy. It marks a “pick and mix” application of new EU rules that come fully into force in January to ensure that all stakeholders in a bank, from shareholders to creditors and uninsured depositors, contribute to a rescue before public funds can be called on.
The risk is that excluding some stakeholders could create a shortfall that taxpayers are once again left to plug. Analysts believe that even if the new EU rules, known as the bank recovery and resolution directive or BRRD, had been in force, euro zone ministers would probably still have chosen to exclude uninsured Greek depositors.
