Good Euros and Bad Euros, Johnson Calling It a Day

Receiving Wide Coverage ...

Good Euros and Bad Euros: The accomplished fact of losses for large depositors to resolve Cyprus' insolvent banks rippled through markets, newspapers and the commentariat. German Chancellor Angela Merkel's hard line against the offshore banking haven prevailed, but fresh worries that depositors in other countries with weak banks might flee reinvigorated doubts about the viability of the euro. An interview in the FT with Eurogroup President Jeroen Dijsselbloem was a focal point. He said that now that financial markets have achieved a state of relative calm, losses for bank creditors instead of taxpayer bailouts are in order. Later he appeared to walk back those remarks, saying rescue deals should be tailored to specific situations.

The Journal ran a lengthy tick-tock of the chaotic standoff over Cyprus' fate. "In the end, this deal ended up looking like a more severe version of an early proposal floated by Germany and the International Monetary Fund to close the country's two biggest banks—a plan that had been rejected by Cypriot president Nicos Anastasiades 10 days earlier." (There must be an app to excise the details about the diets of continental mandarins from such accounts. Baby potatoes, M&Ms, who cares?)

An article in the Times looked at the fallout among ordinary Cypriot depositors and the evaporation of trust in the country's banks. They're still closed as officials scramble to figure out how to impose capital controls to keep money from flying abroad. A bride-to-be plans to withdraw all her cash even though she has less than 100,000 euros, and is therefore protected from losses. "You just get the sense that they don't know what they are doing," she said.

An analysis in the Times reviewed some takeaways from the Cyprus deal, including "a strong message that if the euro zone is going to work, with a banking union that has credibility, there will be no more 'casino economies,' little islands like Cyprus with banking sectors many times larger than their gross domestic product, that do not follow the rules and make everyone else vulnerable." And editorial said that the deal is fairer than an earlier plan that would have also imposed losses on small depositors, but was rejected by Cyprus' parliament. Still, Cyprus faces impoverishment. "The way to prevent financial catastrophes like this is to impose strong centralized regulations on all banks and recapitalize or restructure weakened ones. Most important, the policy makers need to scrap austerity programs that are making it nearly impossible for the European economy and financial system to recover."

The Journal made a tour through recent historical precedents that suggest it could be years before big depositors' claims are sorted out. Other pieces examined reaction in the market for senior bank debt, which has been relatively mild so far, and the predicament for Cyprus' Russian community. "Heard on the Street" said Cyprus may need more bailouts now that its banking sector — a huge part of its economy — has collapsed.