Monday, March 25, 2013

The Diesel-Boom effect

Jeroen Dijsselbloem (Diesel-Boom), the new president of the Eurogroup, who followed veteran Luxemburg Prime Minister Jean-Claude Juncker, declared today in an interview with Reuters and Financial Times that Cyprus rescue will be a model for future bailouts in Eurozone.
This model means that troubled banks will either go bankrupt or will be rescued by tapping private investors and depositors : European taxpayers will not have to pay anymore if banks fail.
"Taking away the risk from the financial sector and taking it on to the public shoulders is not the right approach”, he said.
This new approach marks a brutal change of course since the crisis began three years ago.
The ugly consequences of Lehman Brothers collapse in September 2008 let markets think that a new bank collapse will be avoided at any cost by authorities in order to keep the financial system working. And recent measures taken by European leaders, notably the setup of the 500 billion € European Stability Mechanism (ESM) decided 9 months ago, and supported by ECB Outright Monetary Transactions scheme (OMT), confirmed that conviction.
But since yesterday, things are different. As a perfect neo-conservative apologist, Mr Diesel-Boom insisted : “If I finance a bank and I know that if the bank gets in trouble, I will be hit and I will lose money, I will put a price on that. I think it is a sound economic principle. And having cheap money because the risk will be covered by the government, and I will always get my money back, is not leading to the right decisions in the financial sector.”
Result of this new paradigm in Eurozone :
In Italy, Intesa Sanpaolo -6.2% and UniCredit -5.8%. 

In Spain, BBVA -3.6%, Santander -3.2% and troubled Spanish lender Bankia slumped 41.4%
In France, Société Générale -6% while Credit Agricole lost 5.8%
Italy’s FTSE MIB index fell 2.5%.

Spain’s Ibex 35 slid 2.3%.
This is what we can call the Diesel-Boom effect.
Take care, and have a nice week !

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