This is a game changer at long, long last: a return to a virtuous circle of capitalism where stock and bond investors (which includes firm executives) bear the risk and loss from financial failure NOT TAXPAYERS.
Jeroen Dijsselbloem, the president of the eurogroup of European Finance Ministers explained this morning in an interview with the Financial Times, that the Cyprus bail-in of bondholders and large depositors agreed to on the weekend, marks the beginning of a new course for Europe: a radical change from other bank rescues performed over the last three years. By shifting financial responsibility away from taxpayers and on to the investors and deposit holders in failing banks, a new era of financial accountability has come back in vogue:
“Taking away the risk from the financial sector and taking it on to the public shoulders is not the right approach,” Mr Dijsselbloem, who is also the Dutch finance minister, said in an interview with the Financial Times and Reuters hours after he finalised the Cypriot programme.
“If we want to have a healthy, sound financial sector, the only way is to say: ‘Look, there where you take the risks, you must deal with them, and if you can’t deal with them you shouldn’t have taken them on and the consequence might be that it is end of story’,” he added. “That’s an approach that I think we, now that we are out of the heat of the crisis, should consequently take.” See: Cyprus to be model for future bailouts