Yesterday, in discussing the debate on “European austerity myth”, I put a 400 year old quote from John Donne:
“No man is an Island, intire of it selfe; every man is a peece of the Continent, a part of the maine…any mans death diminishes me, because I am involved in Mankinde; And therefore never send to know for whom the bell tolls; It tolls for thee.”
I think it´s very a propos in the unfolding Cyprus affair, and not only because Cyprus is an island.
The topic has been widely covered (here, here and here, for example). But I found this statement quite shocking:
“As it is a contribution to the financial stability of Cyprus, it seems just to ask for a contribution of all deposit holders,” Dutch Finance Minister Jeroen Dijsselbloem, who chaired the meeting in Brussels, told reporters.
PS. If bank runs on the EZ take hold, the dollar will appreciate and monetary policy in the US effectively tighten.
Update: From W. Munchau at the FT:
If one wanted to feed the political mood of insurrection in southern Europe, this was the way to do it. The long-term political damage of this agreement is going to be huge. In the short term, the danger consists of a generalised bank run, not just in Cyprus.
As in the case of Greece, the finance ministers said: “Don’t worry, this is a unique situation”. This is true only in a very narrow legal sense. The bond haircut in Greece is indeed different to the depositor haircut in Cyprus. And when they repeat this elsewhere, it will be unique once more.
Historinhas 
Another aspect of this might be that it puts the credibility of the ECB’s OMT plan in doubt. Taxing bank deposits appears a foolhardy plan when the ECB could just take care of the difference between bailout money and debt servicing needs in the short run without having to reach into everyone’s pockets through the banking system. I can’t imagine why they would opt for the tax plan instead.
Heres a take: I think it is because of the perception of Cyprian banking system in EU. Germany is pushing hard against countries like Luxembourg and Switzerland which are perceived as destination for tax evader. Cyprus is perceived as place for (mainly russian) mafia money laundering. They also have problem with log corporate tax rate in Cyprus which is very low so they are a sort of mediterranean off-shore place where people register they businesses. In Germany they had pretty loud public debate about helping banks with laundered money even before this summit, and since the election is behind the curve, Schauble wouldnt let anything negativly influence the outcome.
Thank you. I can understand that sort of reasoning, but this plan is a bit over edge considering there are other ways to deal with those issues that don’t include rolling the dice on creating a banking crisis that would rival 2008/09. I also don’t think punishing everyone in the euro zone in that fashion is the best kind of justice for offshore money laundering. It isn’t too hard to forecast that the Russian guys won’t be the ones taking it on the chin, but average Europeans will.