Reuters
October 5, 2011
It may look schizophrenic, but European governments are simultaneously contemplating making banks take a bigger write-down on Greek debt, taxing their financial transactions and boosting their capital base.
There are strong political reasons behind this seemingly contradictory approach: aiding banks with taxpayers' money is political dynamite across Europe and needs to be handled with extreme care.
European leaders are walking a fine as they try to prevent a systemic banking crisis that could plunge the continent and the world back into recession, while avoiding political suicide by being seen to bail out the financial sector again.
This week's near collapse of Franco-Belgian municipal lender Dexia (DEXI.BR), weighed down by Greek and other peripheral euro zone debt as well as toxic U.S. sub-prime securities, highlights the dangers and the potential cost to the taxpayer.
In the minds of many voters from Bordeaux to Berlin, it was banks that got us into this mess in the 2008 financial crisis, and they should be made to pay.
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