The threat of Greece exiting the euro is exposing flaws in how banks and governments protect European depositors' cash in the event of a run.
National deposit insurance programmes leave savers at risk of losses if a country leaves the euro and its currency is re-denominated. The funds in some nations also have been depleted after they were used to help bail out struggling lenders, leading policy-makers to consider implementing an EU-wide protection plan.
With European officials openly discussing a Greek exit from the euro for the first time, savers in Spain, Italy and Portugal may start to withdraw cash on concern that those countries will follow Greece, and their funds will be devalued with a switch to a successor currency.
European leaders discussed regionalising deposit guarantees as part of talks on reigniting growth in the euro area, EU President Herman Van Rompuy said. French President, François Hollande, said after the meeting that he and Italian Prime Minister, Mario Monti, backed the plan. European Central Bank Executive Board member, Peter Praet, called for a similar scheme on May 25 as part of a financial union with one authority responsible for supervision and resolution of cross-border banks.
Policy-makers may also consider cutting interest rates, buying more bonds through the EU’s Securities Market Programme and starting a third longer-term financing operation to stem concerns that the currency may break up,
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