False Start Is the New Euro Group Head Up to the Task?
New Euro Group chief Jeroen Dijsselbloem fanned market uncertainty with contradictory statements about the Cyprus rescue and angered colleagues with his glib negotiating style. This never would have happened under his predecessor, say his critics. Is he in over his head?
The clarification could hardly have been more clear: What Jeroen Dijsselbloem said "was wrong," European Central Bank executive board member Benoit Coeure said on Europe 1 radio. He added that the situation in Cyprus was not comparable with any other euro-zone country.
The European Commission likewise rushed to assure Europeans that the involvement of large depositors and creditors in the bailout of Cypriot banks was in no way a model for the future. "The Cyprus case is unique for several reasons," said a spokeswoman for Internal Market Commissioner Michel Barnier.
The reason for the rushed reassurances was an interview given by Dijsselbloem on Monday in which he said that the involvement of shareholders, creditors and large customers in the Cyprus bailout deal could become a model for the future. In interviews with the Financial Times and Reuters, he said that in possible future bailouts, the private sector must be prepared to become involved. He also suggested that, Luxembourg, a model of stability, could pose a problem because of its large banking sector.
It is never a good sign when a politician has to take back his own statements. It is even worse when others have to do it for them. And it is catastrophic when it happens in the middle of a debate about the future of the euro zone. Clarity and unity would have been necessary. Instead, European leaders look divided once again.
It is no wonder that, among his colleagues in the Euro Group, the gaff elicited a fair amount of head-shaking. Still, none of the euro-zone finance ministers wanted to openly rebuke him.
Up For the Task?
Dijsselbloem's clumsy behavior immediately raised the question of whether the 46-year-old newcomer is really up to the task. After all, the faux pas in the interview was not the first blunder he had made in recent weeks.
His critics point out that under his leadership, the Euro Group has made one of the worst mistakes in its history. Ten days ago, the 17 finance ministers decided to make small-scale savers responsible for bailing out the Cypriot banking sector. Although this was done at the insistence of the Cypriot government, it called into question the EU guarantee on deposits under 100,000 ($129,000).
The blame, of course, should be shouldered by all the finance ministers. Particularly experienced politicians such as Wolfgang Schäuble should have recognized the explosive symbolism of this step. Yet much of the blame was pinned to Dijsselbloem. His experienced predecessor Jean-Claude Juncker, people said, would surely have prevented such a decision.
Dijsselbloem's negotiation style has also been criticized. In Brussels, he's accused of being too rude with the Cypriots. The talks became difficult and messy because Cypriot President Nikos Anastasiades felt he had been treated poorly. It was a clear vote of no confidence when European Council President Herman Van Rompuy, European Commission President José Manuel Barroso and International Monetary Fund chief Christine Lagarde took the negotiations upon themselves over the weekend. All day Sunday, negotiations proceeded at the highest of levels. The finance ministers had to wait until midnight before they could rubber-stamp the agreement.
The Nebulous EU Line on Private Sector Participation
But is the criticism of Dijsselbloem really warranted? Or should it not be divvied out to the entire Euro Group? After all, the presidency is merely a ceremonial post. Dijsselbloem has no independent decision-making power -- he is just the first among equals. Some other finance ministers, Schäuble above all, were no less rude in dealing with the Cypriots. And the contradictory statements about the participation of the private sector only reflect the unclear strategy of the Euro Group. Only time will tell whether Cyprus is really a special case, or rather a model.
The line of the European Commission is no less nebulous. Barnier's spokeswoman said that Cyprus is not an ideal model to be repeated in the future. But it is essentially desirable that taxpayers not be on the hook for mistakes made by banks.
The showdown over Cyprus throws a spotlight on the biggest disadvantage Dijsselbloem must contend with: He lacks the gravitas of his predecessor Juncker. Not only is the Dutch Social Democrat two decades younger, he is not a head of state. Because Juncker was both a finance minister and a prime minister, he was always able to talk to all parties on an equal footing. In dealings with Cypriot President Nicos Anastasiades, that might have helped.
Unfortunately for Dijsselbloem, he can't change that fact. He will have to live with it -- as well as with the inconsistency of the Euro Group. As president, he will ever more frequently become a lightening rod.