Is any country too small to save? Not if it is part of the E.U., according to officials who hammered out a bailout deal early Saturday for the tiny Mediterranean island of Cyprus, whose economy faces a collapse. In an exclusive interview with TIME last Thursday, on the eve of the Cyprus crisis meeting in Brussels, Christine Lagarde, managing director of the International Monetary Fund, stated that the deal “cannot be a Band-Aid.” Sitting in her office in Paris that night, she said, “It’s true it is tiny, the size of Limousin,” a small region of central France. “However nonmaterial that country is relative to others, it is nonetheless significant and potentially an exposure for the whole of the euro zone because of the links between the various systems,” she added. With Europe’s banks intricately connected across the continent, an economic meltdown in Cyprus — one of the E.U.’s smallest countries — has “contagion risks.”
Just how real those risks are has become clear in recent days. After holing up in Brussels through Friday night, Lagarde and the Finance Ministers of the 17 euro countries emerged early Saturday with a deal that forced regular citizens of Cyprus to shoulder $7.5 billion of the cost while the IMF and the E.U. would loan $13 billion of the total bailout. With Cyprus as the fifth country to seek an E.U. rescue, the deal was unique in imposing a one-time levy on all bank deposits, of 6.75% for accounts holding less than €100,000 ($130,000), and 9.9% for those above that figure.