It’s what everyone had been saying privately for days: the bailout package agreed by exhausted IMF and EU officials and finance ministers in the early hours of Saturday morning had lacked any foresight related to the political consequences of demanding that people give up part of their savings.
And in a memo seen by Reuters news agency, it seems eurozone finance officials felt the same, confessing that they were “in a mess” over the Cyprus bailout debacle. In a conference call on Wednesday, they desperately tried to come up with ways to stop financial chaos enveloping other eurozone nations, possibly by insisting on strict capital controls to stop the money flooding out of Cypriot banks when they finally reopen. “The economy is going to tank in Cyprus no matter what,” notes from the call quote the Austrian official as saying. “Restrictions on capital will probably be imposed.”
It was the German representative who raised the once unthinkable: that Cyprus could become the first country forced out of the euro by economic chaos.
The response of the other officials was not recorded, but one said that emotions were running “very high”. There was even doubt in the wisdom of the markets, which in the case of Cyprus seem to be trusting the officials to come up with something. “Markets believe that we will find a solution and that we will provide more money and this might not be the case,” one official cautioned.