Banking, finance, and taxes

EU Finance Ministers Set Deal on Bank Bailouts

The finance ministers of EU nations set rules for bank bailouts, which put the primary pressure on bond and stock holders. It sets up the kind of public/private war that already has happened with sovereign paper — particularly Greece’s. That means that, although a mechanism is in place, it could be broken if institutional investors reject compromises on bank restructurings.

Bloomberg says of the bank bailout deal:

European Union finance chiefs struck an agreement on how to handle failing banks, a step they said would bolster investor confidence and help overcome the euro-area financial crisis.

In seven hours of emergency negotiations in Brussels that wrapped up at about 1:30 a.m. today, ministers settled on guidelines for assigning losses to private creditors and regulating public assistance. They also spelled out when governments can step in and established a role for the European Stability Mechanism, the euro area’s 500 billion-euro ($651 billion) firewall fund.

The power they believe they have is illusory, because “private creditors” may not go easily.

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