Portugal’s rescue of Banco Santo Espirito has left taxpayers on the hook for
large potential losses, sparing senior bondholders in the first serious test
of the EU’s tougher rules for bank failures.
The controversial €4.9bn (£3.9bn) bailout over the weekend set off a relief
rally on the Lisbon bourse, with bank stocks soaring. It also set off a
political furore as opposition parties accused premier Pedro Passos Coelho
of bending to the banking elites. “We live in a democracy, not a bankocracy.
It is unacceptable for the prime minister to take money from the salaries of
workers and pensions, and funnel it to a private bank,” said Catarina
Martins, leader of the Left Bloc.
European officials pledged last year that taxpayers will never again face
losses from a bank failure until all creditors and unsecured depositors have
been wiped out first. They seem to have backed away at the first sign of
trouble, opting for soft terms rather than the draconian measures imposed on
Cyprus.
The EU’s new “bail-in” rules do not come into force until 2016, but it was
assumed the broad principle would be followed. Portugal’s decision to
protect senior bondholders is incendiary in a country already near austerity
fatigue.
The rescue comes three weeks after the central bank said Espirito Santo’s
problems were safely contained. http://www.telegraph.co.uk/finance/financialcrisis/11011920/Europes-tough-new-regime-for-banks-fails-first-test-in-Portugal.html
