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Cyprus Furor Is Rocky Start for New Dutch 'Mr Euro'

Wednesday, 20 Mar 2013 | 3:42 AM ET
Newly elected Eurozone President and Dutch Finance Minister Jeroen Dijsselbloem attends an Eurogroup meeting.
Georges Gobet | AFP | GettyImages
Newly elected Eurozone President and Dutch Finance Minister Jeroen Dijsselbloem attends an Eurogroup meeting.

For Jeroen Dijsselbloem, the new face of the euro zone, a furor over a decision to hurt savers in Cyprus has been a baptism of fire in his role as chairman of the Eurogroup of finance ministers of the currency area.

After just his third meeting in the job, the Dutch minister faces accusations of failing to anticipate the wrath that a confiscatory levy on small savers would spark, risking a rejection by the Cypriot parliament that could plunge the euro zone back into crisis.

Dijsselbloem and ECB executive board member Joerg Asmussen barely mentioned the levy on all bank accounts when they announced an EU bailout deal for Cyprus at 4 a.m. on Saturday, growing irritated when journalists pressed them on the issue.

(Read More: How Russia Could Take Revenge Over Cyprus Deal)

Insiders who attended the talks said German Finance Minister Wolfgang Schaeuble and Asmussen, a fellow German, had called the shots while the 46-year-old chairman, a minister for just four months, was too inexperienced to carry much weight.

"There is a realization, a frustration, that countries outside the troika (European Commission, European Central Bank and International Monetary Fund) and Germany are becoming bystanders in these crucial Eurogroups, and Dijsselbloem is just going along with that, cementing that reality," said one diplomat from a small euro zone country.

Dijsselbloem's predecessor, veteran Luxembourg Prime Minister Jean-Claude Juncker, who relinquished the role in January after more than eight years, made clear his disapproval in an interview with an Austrian newspaper.

"It was the first time I wasn't in the Eurogroup. I would have wished for a more gentle approach to small savers," he told Der Standard daily.

Juncker's Wiles

Some euro zone officials, speaking on condition of anonymity, said the wily Juncker, a walking encyclopedia of European integration who had participated in every EU financial decision since the 1991 Maastricht summit that created monetary union, would have sensed the danger.

"If he were still chairman, he would not have allowed this kind of anti-European integration rhetoric that we are hearing now," one official with close knowledge of the Eurogroup said.

The chain-smoking Juncker could be erratic and cantankerous in chairing late-night ministerial meetings, but his political lightning-detector was finely tuned and he was more willing to stand up to the EU's German paymasters, another said.

Many Cypriots blamed Germany and the European Central Bank for coercing Nicosia to impose a one-off tax on even small savings, triggering fury in Cyprus and raising uncertainty for savers in other troubled European countries.

(Read More: Don't Count Cyprus Out of the Euro Just Yet: Traders)

Officials from Berlin and the ECB countered that they had never specified how a 5.8 billion euro ($7.52 billion) Cypriot contribution to the cost of bailing out the island should be divided up among depositors.

Cypriot President Nicos Anastasiades had forced the decision to put a levy on all bank accounts by insisting the hit on the biggest holders must not exceed 10 percent, they said.

The move has raised doubts among savers across the euro zone about the value of an EU-wide government guarantee on bank deposits of up to 100,000 euros, enacted after the 2008 global financial crisis.

The European Commission said the guarantee applied only if a bank collapsed and did not protect savers from fiscal measures decided by parliaments. Dijsselbloem sought to reassure depositors elsewhere that there was no need for a one-off levy on assets in other countries.

Determined to minimize the cost of bailing out Cyprus to German taxpayers in an election year, Schaeuble said depositors in Cyprus had only themselves to blame.

"Whoever deposits their money in a country because it will be taxed less and controlled less runs a risks when the banks in these countries are no longer solvent," he said on Tuesday.

(Read More: Cyprus Bailout 'Disaster' Risks New Euro Crisis)

"That is what happened in Iceland and in Ireland some years ago. European taxpayers should not be made responsible for this risk."

Unorthodox Invitation

For Dijsselbloem, the trouble began with the unorthodox way he called Friday evening's meeting.

Schaeuble made clear his irritation at learning of the summons via Twitter at a time when it was not clear whether a majority could be found for any Cyprus deal.

"I'm an old-fashioned person. I have not yet received an invitation and I was in parliament, so I wasn't looking on Twitter, which I don't do on other occasions either," he said.

Another euro zone official said Dijsselbloem had made a good start and was better organized than Juncker, but shortcomings in the preparation of the Cyprus meeting had irked some ministers. The troika's report was only circulated a few hours before the meeting and there were no options and alternatives drafted.

"Of course, he lacks respect, direct and confidential private ties with key leaders that Juncker had. But he can catch up with this in time," said the official, who like others requested anonymity because he is not authorized to speak in public.

When protests erupted in Cyprus, savers stormed cash machines to withdraw their money and the Cypriot parliament put off a vote on the bailout, Dijsselbloem called another Eurogroup meeting by teleconference on Monday to row back on applying the levy to small deposits.

(Read More: Cyprus's Parliament Rejects a Tax on Bank Deposits)

In a statement, he said ministers hoped the levy would not be applied to accounts under 100,000 euros, and the money would be raised instead from a higher rate applied to larger accounts.

"Even though all the ministers now insist they did, nobody fought for the small depositors on Friday night," said a person who participated in the Eurogroup conference call.

The change of heart may have come too late to save the Cyprus rescue package, which Anastasiades said on Monday a majority in parliament was likely to reject.

If that happens, Dijsselbloem may find himself presiding over a full-blow return of the euro zone's sovereign debt crisis that will sorely test his political skills.

Contact Europe: Economy

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