In Cyprus as in Britain, the prudent must pay for others’ folly – but not like this

The Cypriots are the authors of their own misfortune, having turned their banking system into a rackety offshore haven for Russian loot and lent most of the proceeds to Greece. But it was madness on the part of bailout negotiators to shake confidence in banks across the eurozone by trying to impose a levy on deposits held by even the smallest Cypriot savers, in what was presumably an attempt to cream off a layer of ill-gotten foreign cash. And even if the proposal has been radically watered down by the end of the week, we now know the European powers-that-be are prepared to pull this device out of their toolbox if the subject government is too weak to resist. That threatens to undo much of the good work of European Central Bank president Mario Draghi, whose declaration last July that he would do ‘whatever it takes to preserve the euro’ and maintain confidence in its banks seemed to mark a turning point in the eurozone crisis.

The irony is that arguably many of us have already suffered just such a levy on our savings, having endured four years of below-inflation official interest rates underpinned by quantitative easing. That is the price the prudent have paid, here and elsewhere, for the follies of borrowers, traders, real estate developers and profligate governments — and one way or another, we have certainly surrendered more that the 9.9 per cent top-rate levy proposed in Cyprus. But to impose such a haircut upfront on every citizen looks disastrously ill-considered.

Surely better to let the island’s banks go bust while protecting small depositors, then embark on an Icelandic-style reconstruction — which as Michael Lewis recorded so entertainingly in Boomerang, included putting sensible women into many senior positions to repair damage wrought by their risk-happy fishermen-turned-financier menfolk. I suspect the psychology of the Cypriot male has been much the same — and hope a trawler-load of stern Icelandic ladies is even now being recruited to sail from Reykjavik to Limassol.