The Cyprus bailout may please the Germans, but for Cypriots years of pain lie ahead

Cyprus can’t be said to be in the single market if there are severe limits to moving money

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The Independent Online

For German politicians with one eye on September’s elections, the Cyprus rescue is a good deal. For European Central Bank president Mario Draghi, desperately trying to keep the “irreversible” euro on the road, it’s a good deal. For the 800,000 Cypriots facing the obliteration of their nation’s economy in the decade ahead, it’s a nightmare.

The verdict of Finance Minister Michael Sarris was that Cyprus had avoided a “disastrous” exit from the eurozone. But after a few years of this “medicine”, Cypriots  will be begging to differ.

Cyprus is about to embark on drastically painful surgery to shrink the size of its banking system as a share of its economy from seven times to around three times over the next five years, tapping €4.2bn from its richest depositors with savings over €100,000 to do so. Hammering savers makes little sense for the sake of the rest of the eurozone periphery, where those with deposits of more than €100,000 will be jittery.

But politicians in Germany are purring because they can go to the polls saying that they are not throwing taxpayers’ cash at a bailout of Cyprus’s offshore banking business and (alleged) Russian money launderers. For the Cypriots themselves, the devastated banking sector threatens a credit crunch which could double the nation’s unemployment rate of 14.7 per cent.

Capital controls passed by the parliament meanwhile put the nation in a surreal netherworld: it still uses the euro, but if people face severe limits on the amount of money they can move out of the country, it can’t be said to be part of a single market. It hardly encourages investors to pump in the funds the island will badly need in the coming years.