“As Greece lurched toward its first bailout in early 2010, the largest bank in Cyprus was stocking up on Greek bonds.
That lethal misjudgment helped drive the government in Nicosia toward a rescue of its own, a 10 billion-euro ($13 billion) project involving measures so novel — beyond an unprecedented raid on bank deposits that sparked a global uproar — that policy makers initially kept them under wraps.
Neither a plan for Cyprus to sell gold reserves nor one to repay a loan from the Cypriot central bank with real estate was disclosed in a statement by euro-area finance chiefs in the early morning hours March 16. The measures were cited by Jeroen Dijsselbloem of the Netherlands, the group’s chief, in a confidential recap, which was obtained by Bloomberg News.
“It’s clear they’re making stuff up as they go along: every bailout is different in an unexpectedly horrible new way,” Alexander Apostolides, an economics lecturer at European University Cyprus in Nicosia and a member of the Cypriot government’s economic-advisory council, said in an interview. “They’re not really thinking ahead.”
With another small country, Slovenia, fighting to avoid the euro region’s sixth bailout, the Cypriot misadventure raises the question of how much policy makers have learned in more than three years of straining against the debt crisis.
Hemmed in by an election campaign in Germany, along with demands of the European Central Bank and the International Monetary Fund, policy makers are fighting record unemployment, a second year of recession and austerity and bailout fatigue to keep the 17-nation currency bloc whole.