Cyprus to be model for future bailouts The €10bn Cypriot rescue marks a watershed in how the eurozone deals with failing banks, with European leaders now committed to "pushing back the risks" of paying for bank bailouts from taxpayers to private investors, the chairman of eurozone finance ministers has warned. Jeroen Dijsssebloem, the president of the eurogroup, said the relative market calm in recent months, coupled with the lack of market panic following the decision to force private investors and depositors to pay for the entire bailout of two large Cypriot banks, allows the eurozone to more aggressively go after private money when banks fail. "Taking away the risk from the financial sector and taking it on to the public shoulders is not the right approach," Mr Dijsselbloem, who is also the Dutch finance minister, said in an interview with the Financial Times and Reuters hours after he finalised the controversial Cypriot programme. "If we want to have a healthy, sound financial sector, the only way is to say: Look, there where you take the risks, you must deal with them, and if you can't deal with them you shouldn't have taken them on and the consequence might be that it is end of story," he added. That's an approach that I think we, now that we are out of the heat of the crisis, should consequently take. This new approach would mark a radical change of course since the crisis began three years ago. In both the Irish and Spanish banking sector rescues - which were similar to Cyprus in that massive bank failures risked plunging the governments into bankruptcy because of huge bailout bills - several categories of private creditors, particularly senior bondholders and uninsured depositors, were never touched. Controversially in Ireland, taxpayers were forced to pay off senior bondholders in the wildly speculative Anglo Irish Bank. European Central Bank and other eurozone officials were reluctant to go after any private creditors other than junior bondholders for fear of exacerbating the flight of investors from the eurozone. Mr Dijsselbloem acknowledged that "there is still nervousness" among some of his fellow finance ministers about the approach and whether it would scare off private investors in both eurozone sovereign and bank debt. He noted it was this fear that led officials to try first to impose a levy on Cypriot bank accounts last week rather than forcing the island's two largest to close and then be restructured. But he said that investor skittishness could ultimately make the financial sector healthier since it would raise the cost of financing for unsound banks. "If I finance a bank and I know if the bank will get in trouble, I will be hit and I will lose money, I will put a price on that," Mr Dijsselbloem said. I think it is a sound economic principle. And having cheap money because the risk will be covered by the government, and I will always get my money back, is not leading to the right decisions in the financial sector. Mr Dijsselbloem said the shift also made it far less likely that the eurozone's €500bn rescue fund, the European Stability Mechanism, would ever be used to directly recapitalise struggling banks, a policy that was agreed just nine months ago. We should aim at a situation where we will never need to even consider direct recap. Asked what the shift in policy meant for countries like Luxembourg and Malta, which like Cyprus have large financial sectors compared to their overall economy, Mr Dijsselbloem said: "It means: deal with it before you get in trouble. Strengthen your banks, fix your balance sheets, and realise if a bank gets in trouble, the response will no longer automatically be: we'll come and take away your problems.