MacroScope

One small step…

EU finance ministers succeeded last night where they failed last Friday and reached agreement on how to share the costs of future bank failures, with shareholders, bondholders and depositors holding more than 100,000 euros all in the firing line in a bid to keep taxpayers off the hook.

Germany and France had been at odds over how much leeway national governments would have to impose losses on those differing constituencies and, as with many EU deals, a compromise was reached whereby some flexibility is allowed.

This is not to be sniffed at. For the first time it sets a common set of rules (albeit with wiggle room built in) to deal with bank collapses but, as we’ve explained ad nauseam in recent weeks, it is only one building block en route to a comprehensive banking union which was promised last year and would amount to the last vital plank in the defences being built around the currency bloc to banish future existential threats.

The euro zone powers may well get there in the end but as our poll of 50-odd economists showed yesterday, most don’t see any progress before the end of the year, largely because Germany’s September elections will prevent any further leap beforehand. Berlin has also been distinctly cool to the European Commission’s plans for a cross-border authority to wind up failing banks backed with a common fund.

That isn’t necessarily a disaster – the poll also showed the economists don’t expect the euro crisis to return to the pitch it reached last year – but this is playing out against a backdrop of rising euro zone borrowing costs again.

European rescue: Who benefits?

The words “European bailout” normally conjure up images of inefficient public sectors, bloated pensions, corrupt governments. But market analyst John Hussman, in a recent research note cited here by Barry Ritholtz, says the reality is a bit more complicated:

The attempt to rescue distressed European debt by imposing heavy austerity on European people is largely driven by the desire to rescue bank bondholders from losses. Had banks not taken on spectacular amounts of leverage (encouraged by a misguided regulatory environment that required zero capital to be held against sovereign debt), European budget imbalances would have bit far sooner, and would have provoked corrective action years ago.

In other words, even if state actors mishandled government finances, Wall Street was, at the very least, an all-too-willing enabler.