At its heart, it comes down to the difference between a euro zone country getting direct banking assistance from the region's 500 billion euro rescue fund, known as the ESM, or a country largely being left to fend for itself, with the market volatility and high borrowing costs that go with it.
In that respect, "legacy assets" are a critical link in the chain that binds governments to their banks -- the "vicious circle" that has dragged several states down with their lenders which policymakers are desperate to break.
From the Finnish, Dutch and German point of view, any banking problems that have already come to light, or emerge before the European Central Bank takes over as the euro zone's single banking supervisor in mid-2014, are "legacy".
As Finnish Prime Minister Jyrki Katainen said earlier this month, "a line has to be drawn somewhere" so that European taxpayers aren't left footing the bill for badly run banks.
Katainen says existing banking problems in Ireland, Spain or elsewhere should remain chiefly the responsibility of their governments, and only in the future, after mid-2014, would the ESM, and ultimately European taxpayers, provide any backstop.
"Direct capitalization through the ESM has been decided to be used only once the European supervision is up and running," he said on January 16. "This is the rule that we have decided."
DIFFERENT VIEW
The problem is that is not the way Italy, Spain, Ireland and others have interpreted the rule since it was drawn up at a summit of euro zone leaders in Brussels last June.
http://www.chicagotribune.com/business/sns-rt-us-eurozone-crisis-legacybre90t0lk-20130130,0,7004254.story
In that respect, "legacy assets" are a critical link in the chain that binds governments to their banks -- the "vicious circle" that has dragged several states down with their lenders which policymakers are desperate to break.
From the Finnish, Dutch and German point of view, any banking problems that have already come to light, or emerge before the European Central Bank takes over as the euro zone's single banking supervisor in mid-2014, are "legacy".
As Finnish Prime Minister Jyrki Katainen said earlier this month, "a line has to be drawn somewhere" so that European taxpayers aren't left footing the bill for badly run banks.
Katainen says existing banking problems in Ireland, Spain or elsewhere should remain chiefly the responsibility of their governments, and only in the future, after mid-2014, would the ESM, and ultimately European taxpayers, provide any backstop.
"Direct capitalization through the ESM has been decided to be used only once the European supervision is up and running," he said on January 16. "This is the rule that we have decided."
DIFFERENT VIEW
The problem is that is not the way Italy, Spain, Ireland and others have interpreted the rule since it was drawn up at a summit of euro zone leaders in Brussels last June.
http://www.chicagotribune.com/business/sns-rt-us-eurozone-crisis-legacybre90t0lk-20130130,0,7004254.story
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