Obviously Cyprus did the right choice. The real and capitalistic choice that leads to a healing in a long term.
The only right policy in current confused financial world is the simple one. The well-known principle of the bankruptcy of bad managed structures. The default is the real healing medicine, after years of accumulated mistakes, that led to an absolutely absurd situation. And this principle is valid not only for Cyprus, but for all other troubled economic structures that has become an enormous problem and that are consuming an endless flow of bailout money. I mean banks, corporations, entire states. Everyone who is to default must default. It is painful, but it is the right way. The bankrupt is a teaching process when you analyze the mistakes and do not repeat them.
So now Cyprus will have bigger problems than they would be if only the deposit tax was implemented. In this case EU would give 10 billion euros and Cypriots would sacrifice 6 billion, and mathematically the system could be rebalanced. Actually this would not happen as the inevitable bank run would anyway lead to a financial catastrophe. But mathematically this was an option.
Now there is no even a theoretical chance for a better result. The banks will go bankrupt and this will happen even to the stable banks, because no bank can survive a massive bank run. When the banks are out of game, the government will have to repay the deposits. But the government has no this money. Therefore the deposits will either be not repaid, or will be repaid not in Euros, but in any type of devaluing Cyprus currency (Lira). So the depositors will lose more that 6-10% of their money. Much more.
Anyway that is the way to learn the lesson, and this lesson will be very useful.
There is also a theoretical chance of EU to save the Cyprus even if it rejects participating in the cost of salvation. It is absolutely possible this to happen in any way (for instance a ECB intervention). This will mean that again some Greeks have outplayed some stupid Europeans. But in long term this will mean even worse times for Cypriots because they will miss the needed lesson, and later its price will be even higher.
March 19th 2013