Larch March, there was an almighty uproar in Europe and around the world when the small island nation of Cyprus suddenly found themselves on the brink of exiting the eurozone and floated a teeny, tiny, involuntarily “deposit haircut” off of people’s life savings as a nifty method to quickly raise the money they’d need in order to convince Europe’s finance ministers to administer them the fifth in the series of euro-bailouts. The final bailout proposal included a levy on ‘only’ uninsured deposits over 100,000 euros, plus other measures that would force Cyprus to cut their budget, shrink their outsized banking sector, and privatize state assets.

Their rescuing creditors, however, are now warning Cypriots that they probably shouldn’t get too comfortable, via the WSJ:

Cyprus’s banking sector should brace for further turbulence as deposits continue to shrink and bad loans look set to multiply, the country’s international creditors warned Wednesday.

The European Commission, in its first review of Cyprus’s €10 billion euro ($13.36 billion) bailout, said the Cypriot government was doing what it should in terms of cutting public spending.

But the radical shake-up of the banking sector coupled with unprecedented restrictions on the movement of capital in and out of the tiny island have left it exposed to deep economic pitfalls.

The International Monetary Fund, which contributes one-tenth of the bailout, said in its own report also released Wednesday that the effects of the banking crisis on the real economy could be worse than expected. …

European experts stood by their spring forecast that the Cypriot economy would shrink 8.7% in 2013 and a further 3.9% in 2014, but raised their unemployment forecasts sharply. They said that 17% of the Cypriot workforce would be out of a job this year, up from an original projection of 15.5%, while unemployment will hit 19.6% in 2014, not 16.9% as previously thought.

“Worse than expected.” Always.

There is not and never was going to be an easy way out of this, for neither Cyprus nor the eurozone at large. Once you’ve allowed systemic fiscal, structural, and debt problems to go on too long unaddressed, grinding material hardship is reliably what’s in store.