So, setting aside Mr. Dijsselbloem’s comments, what’s the likelihood eurozone officials go after large deposits in future bailout negotiations?
I suspect they’re lower than you might think.
I believe Cyprus was indeed a special case—not just because of the alleged money laundering, but also because of the sheer amount of foreign capital it attracted. German Finance Minister Wolfgang Schäuble suggested as much, saying Cyprus’s model of “attracting capital with low taxes and lax regulation” doesn’t work.
Hmm…that reminds me of 2011, when Mr. Schäuble told EU finance ministers Ireland’s 12.5% corporate tax rate “can’t stay like this.”
Core Europe—particularly Germany and France—has long sought to “harmonize” (a euphemism for synchronize) financial, tax and regulatory policy throughout the eurozone. They say this is to restrain “uncompetitive” behavior, conveniently ignoring that the outliers with more internationally favorable policies are actually competing. Ireland’s tax rate—one of the most competitive globally—was deemed uncompetitive, and Germany and France tried to force a raise. Officially, they argued this was necessary to raise Ireland’s tax revenues, but it soon leaked that they wanted a more equitable distribution of multinational corporations throughout Europe. Or, more simply, they thought Ireland was “hogging” all the business.
And today, I suspect they think Cyprus (and to some extent Luxembourg and Malta) is “hogging” all the foreign capital—that, by offering easy tax treatment and a light regulatory environment, Cyprus wasn’t playing fair with the rest of Europe. And it follows that, rather than make their own tax codes and regulatory schemes more attractive, they’d rather Cyprus and the eurozone’s other financial havens handicap themselves in order to spread the foreign capital around the continent. This gives officials every incentive to whack the banking sectors in these nations—and officials have made some telling comments about Luxembourg’s financial sector in recent days (Luxembourg, rightly, thumbed its nose).
The corollary of this is that officials have far less incentive to force losses on depositors in nations with smaller, less internationalized financial sectors. There’s no overarching (and misguided) desire to cut them down to size in the name of supposedly fair play. If these nations need a sovereign bailout, officials likely revert to the old bailout-for-austerity model, with taxpayers, shareholders and junior bondholders shouldering the financial burden.