For southern Europeans, leaving the euro now makes more sense

UNTIL a few days ago, it looked as if the dust was settling on the Cyprus crisis. With €10 billion promised from the EU and IMF, and a further €7 billion to come from the uninsured depositors in the island's two largest banks, the hope was that yet another bailout had been put to bed.

But one of the lessons of the unending euro debacle is that once a country gets into trouble, whatever is done to get it out is never enough. Greece has been bailed out so many times even the experts have lost count. Ireland – supposedly the poster boy for EU imposed austerity – has just had to be given an extra seven years to pay its debts.

In Cyprus's case, the amount required to fill its financial black hole has risen from €17 billion to €23 billion in the three weeks since its bailout was signed. To make matters worse, with a German election due, Chancellor Merkel is adamant that no more outside help will be forthcoming. The Cypriots, it seems, will have to find the extra €6 billion - €5,000 for every adult and child in the country - from their own rapidly diminishing resources.

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But it is not just the extraordinary speed with which the stricken island's finances are collapsing that marks Cyprus out from other euro disasters. In all previous bailouts the banks have been propped up. In Cyprus, for the first time, they have been allowed to collapse and depositors have lost their money.

Because those with less than €100,000 in their accounts – the amount guaranteed by the EU - were spared, the eurozone authorities have been able to claim that elsewhere it is business as usual for the single currency. No one, however, really buys this. Letting the two largest Cypriot banks fail has clearly changed the rules of the game, and not just for dodgy Russian oligarchs.

What happened in Cyprus has driven a coach and horses through plans to establish a eurozone banking union. Only a few months ago this was the big idea to save the euro; now it has been set back for years, possibly for ever.

Instead, post-Cyprus, the message is that, when it comes to banks, countries are on their own. The repercussions of this volte face are likely to be significant, and not at all what the EU intended.

Up to now, when governments have had to impose austerity at the behest of Brussels and Berlin, they have been able to argue that, if people take the medicine and stay in the euro, then at least nobody will lose their savings. Faced with this trade-off, countries as different as Ireland and Greece have been prepared to accept cutbacks in wages and welfare which, even a couple of years ago, would have been unimaginable.

But in the wake of the Cypriot bank failures this quid pro quo can no longer be relied on. Not only have many lost their savings, those whose money is still intact have been made subject to draconian financial restrictions to prevent them sending it out of the country.

In practical terms this means that a euro in Cyprus is no longer the equal of a euro elsewhere. When it will be again – if ever – no one knows.

To say that, after all this, the obvious next step for Cyprus would be to leave the euro altogether and regain control over its own currency, would be too simple. Quitting would be a huge decision. Confidence in Cyprus's financial system will remain low for a long time, whatever route it follows.

The world has been expecting one or other country to leave the single currency for so long now, that bailout ennui has set in. Nevertheless, there is little doubt that by insisting that savings be lost and capital controls be imposed while a country is still in the single currency, the EU has unwittingly made the cost of leaving much less daunting than it was. A euro exit must now be a possibility, in a way that it was not before the Cypriot bailout and bank failures.

Across Southern Europe popular despair and fury at what is happening to the economy are rising sharply, almost week by week. If the price of Cyprus staying in the euro is that, on top of everything else, it has to find another €5,000 a head, without any more EU help and when the economy is already on its knees, then leaving really might become the least worst option available.