On March 16, at the first Eurogroup meeting that was held since the general election in Malta, the new Finance Minister, Edward Scicluna, described the ordeal of Cyprus as “quite an experience”.

A red line has been crossed since trust has been breached

He said: “If one had any doubts about the indignity suffered by indebted countries which are forced to seek a bailout, one should have been present for the night-long meeting held in Brussels to decide the bailout conditions to be imposed on Cyprus following the crises which left them with a €17 billion gap in their system.”

It was at this meeting that the Eurogroup agreed a bailout package worth some €10 billion for the Cypriot Government to save the country’s two biggest banks, Laiki and the Bank of Cyprus. Because of their excessive exposure to the Greek crisis, the two largest banks of Cyprus found themselves in serious difficulties.

One of the conditions for the bailout was that depositors should bear part of the losses through a levy on their deposits. This means that depositors would lose part of their deposits, an exceptional measure that reflects the fact that the Cypriot banking sector is several times bigger than the country’s economy.

Cypriot banks have large amount of foreign assets, particularly Russian deposits, so it is no surprise that this measure threatened to create tensions between Cyprus and Russia. Moreover, there was a serious threat of a run on Cypriot banks before legislation could be passed and implemented.

The measure would also have a serious impact on local depositors whose savings would suddenly be chiselled away with this levy.

As opposition to this plan began to mount, preparations were made to keep bank branches closed on March 18 to give enough time to pass the necessary law to ratify the deal while avoiding a run on deposits. However, the following day, on the 19th, Cypriot MPs rejected the bailout terms through a vote in Parliament.

As the Cyprus authorities started to work on a Plan B, they turned to Russia for help but their Finance Minister returned empty-handed. Last Wednesday, a conference call was held between the Cypriot Government and the eurozone ministers following which a new plan was drawn up.

Last Friday, Cyprus adopted laws allowing for certain measures to be put into place, including the division of bad banks from good banks and the introduction of capital controls. This sounds ominous for a member country of the eurozone where free movement of capital has become a fact of life.

As further discussions on the levy to be imposed on bank savings continued to take place, the country’s two biggest banks on Sunday introduced cash limits, effectively reducing the amounts that savers can withdraw every day to a maximum of just €100.

Meanwhile, Cyprus raised the ante by threatening that it would default and exit from the eurozone unless concessions were made. And, in the early hours of last Monday, a new bailout for €10 billion was agreed. But at what terms?

Heavy losses will still be borne by uninsured depositors, including wealthy Russians, although small savers will now be protected.

Laiki, also known as the Popular Bank of Cyprus, will be shut down as part of the deal but the Bank of Cyprus will survive.

Austerity measures and tax increases will now be accompanied by a complete restructuring of the Cypriot banking system. It seems that the new deal that was agreed with Cyprus does not require the approval of the Cypriot Parliament, in contrast with the previous agreement.

And the deal helped calm down fears of Cyprus exiting the eurozone, a move that could have brought contagion to the whole eurozone system.

But the Cypriot deal also sets a clear precedent.

Unlike previous EU-IMF deals, this one is not just about austerity measures and taxing the taxpayer. This time round, the deal also involves putting the onus on the banking system through levies on depositors. This is an unprecedented move and it undermines the trust between depositors and banks. Suddenly, depositors feel that they are no longer safe because, if things go wrong, the Government can decide to turn onto them and take a slice of their savings.

A red line has been crossed since trust has been breached.

According to the head of the Eurogroup, Dutch Finance Minister, Jeroen Dijsselbloem, this latest deal represented a new template on which future bailouts will be modelled. This is not something that I am comfortable with.

In the circumstances, I would like to know whether our Finance Minister objected to this unprecedented move rather than just describing it as “quite an experience”. So far, we have had no reports that he raised his hand to object.

Cyprus tried to sound tough in the beginning with threats of a default and of leaving the eurozone. However, in the end, the Cypriots found that their effective sovereignty was limited because they had given it up along the way when they allowed themselves to get into this kind of situation in the first place.

Their own way out was having to accept the bailout conditions because, by now, they had run out of other options.

The other course would have thrown them into financial oblivion.

Cyprus is finding itself between a rock and a hard place. And this is a lesson which we would do well to follow very closely.

Simon Busuttil is Nationalist Party deputy leader.