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EDITORIAL

Some relief for the euro

The idea of using the Cypriot bailout as a model for future rescues complicates a balanced pact

The Eurogroup's agreement on Cyprus was beginning to relieve anxiety about the present and the future of the euro until Jeroen Dijsselbloem, current Eurogroup president and Dutch finance minister, spoke on Monday. Uncertainty then returned to the more vulnerable markets, as he proposed to make the Cypriot bailout a model to be used in other countries with serious problems. That is, to avoid placing the whole burden on the taxpayer; to suggest that every bailout should entail the possibility of liquidating a bank in crisis; and to impose "haircuts" (write-off losses) on major investors and depositors.

If the EU's fumbles were already extraordinarily serious in the negotiation of the Cypriot bailout, the levity shown by Dijsselbloem in making it the paradigm of similar initiatives in the future confirms the obtuseness of certain EU leaders, capable of putting radically different financial realities in the same bag.

Pending details on the island's stabilization plan, it appears that the major guidelines are balanced; the principal requisite, legality — in particular the 100,000-euro ceiling — having been respected. This is not an idle demand. The Union is creating, though not from zero, a whole array of mechanisms for monetary union, with their pertinent rules of functioning. But no one should confuse the construction of new instruments with the neglect or junking of the already existing ones, certainly not without previous replacement. Likewise, in the economic aspect non-compliance, and the resulting legal insecurity would automatically have caused a run on deposits, financial panic, and enormous damage to the stability of the single currency.

The rescue package is also balanced in its general lines — again, pending further details — in that it distributes the burden between the EU partner states and the Cypriot population. To leave the crisis-stricken land in the lurch would have been a grave self-mutilation of the solidarity owed between partner states. The pretension that one state's financial problems be entirely solved by its neighbors is also unacceptable. Those who exaggerate the sacrifices being demanded of Cyprus, forgetting what the bailout is costing other EU citizens (including the Spanish), downplaying the fact that the Cypriot crisis is of Cypriot origin, and confusing a mutualizing of responsibilities with the annulment of the stricken country's own responsibility, may win applause from the populist angle, but little from that of reason — much less the federal reason that informs the construction of the EU.

The Cypriot financial system was not only over-scaled, but also for well over a decade has catered to Russian oligarchs and speculators, who profited from a fiscal system scandalously generous to capital assets, including those of murkiest origin. Many deposits over the insured minimum were receiving high interest rates. So it is fair too that, together with EU and Cypriot taxpayers, the shareholders, bondholders and large depositors should contribute their share: they knew that they were acquiring a risk in the de facto equivalent of an investment fund, from which they could in no way be protected.