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New Eurogroup chief Dijsselbloem passes first test: analysts

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(Globalpost/GlobalPost)

New Eurogroup chief and Dutch Finance Minister Jeroen Dijsselbloem passed his first test on Friday by saving his country's fourth-biggest bank, setting an example in Europe of how the banking crisis should be handled, analysts said.

Dijsselbloem announced the state was to nationalise SNS Reaal at a cost of 3.7 billion euros ($5 billion) after a deadline to find an alternative solution to bail out the troubled banker expired late on Thursday.

Otherwise financially relatively healthy, SNS Reaal found itself in trouble after suffering recurring losses in recent years linked to its Property Finance subsidiary, bought from ABN Amro bank in 2006.

"This is a good example ... to show that even in a (financially) healthy country like the Netherlands these situations of unaccountability will no longer be tolerated," said Tom Muller, analyst at Theodoor Gilissen private bankers.

"I am convinced that other countries are closely watching how he (Dijsselbloem) is handling this," Muller added.

Chosen as Dutch Finance Minister barely three months ago, Dijsselbloem, 46, was elected two weeks ago to lead the key eurozone finance ministers' forum, despite French reservations over his inexperience.

As a relative newcomer, Dijsselbloem past his first major test, said Ivo Arnold, economics professor at Rotterdam's Erasmus University.

"Although this (Dijsselbloem's decision) was inevitable, I think it's important that early on in his tenure as minister to solve this problem," Arnold told AFP.

"It could have been much more damaging for his position as chairman of the Eurogroup if he did not intervene and this problem kept popping up again-and-again."

Also to the credit of the minister, "he does ask for a substantial contribution from the private sector," Arnold added.

Friday marks the first time the Dutch state used its so-called Intervention Law to nationalise a bank.

The law came into force in June 2012 and allows the state, in consultation with the Dutch Central Bank (DNB), to demand that those holding bonds issued by a bank contribute to the bank's rescue when it fails.

In SNS Reaal’s case, the state is expropriating shareholders and subordinated bond holders, but it did not go all the way by taking over common bond holders' investments.

Nico van Geest, analyst at the Amsterdam-based Keijser Capital told AFP he was disappointed that once again -- as in 2008 -- the Dutch state had to intervene to bail out a troubled bank.

The government paid 16.8 billion euros in October 2008 to nationalise the Dutch assets of Fortis, which it later merged with ABN Amro which it also bought. ING received 10 billion euros and SNS Reaal itself a 750-million euro boost.

Friday's intervention means that two of the four major banks in the Netherlands, ABN Amro and SNS Reaal, the other two being ING and Rabobank, are now in state hands.

Van Geest however praised the new intervention law, saying it was a useful tool to put the brakes on banks going bad before it was too late.

Dijsselbloem's decision backed by this law should be "the norm to save a situation such as this," added Van Geest.

Dijsselbloem has been in his post for barely three months. His baptism of fire will serve him well in future when as Eurogroup president he will have to deal with other countries where banks are in crisis, said former Dutch statistics office analyst Thomas Cool.

"It's good for him to have this learning experience. It will allow him to relate better to other countries where banks are having similar problems and have more empathy," Cool told AFP.

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http://www.globalpost.com/dispatch/news/afp/130201/new-eurogroup-chief-dijsselbloem-passes-first-test-analysts