Five lessons from a week of confusion in Cyprus


Fittingly, a week of turmoil in Cyprus ended in confusion. The government in Nicosia was in marathon talks with the European Union, the European Central Bank and the International Monetary Fund on Friday amid speculation that a deal would be done over the weekend to prevent Cyprus from going bust on Monday.

But even at this stage, five broad conclusions can be drawn at the end of another tumultuous week in the life of the euro. Firstly, the proposal to exempt deposit holders of less than €100,000 (£85,000) from the bailout levy is as sensible as the failure to include this clause from the outset was foolish. Much angst would have been avoided had those with deposits of above €100,000 been targeted for the €5.8bn demanded by the troika in return for a €10bn financial lifeline.

As a result of this blunder, a drama has been turned into a crisis. Tough capital controls will now be needed to prevent a full-scale run when the banks finally open for business again, together with a possible restructuring of the banking system to create a "good" bank and a "bad" bank.

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