There are already TV pictures of queues at Cyprus bank ATMs trying to get their money out. Remember Northern Rock! Reuters reports,
"Making bank depositors bear some of the costs of a bailout had been taboo in Europe, but euro zone officials said it was the only way to salvage Cyprus's financial sector, which is around eight times the size of the economy.
European officials said it would not set a precedent."And the band played believe it if you like. It means exactly that. Its a huge precedent which is why commentators have been decribing it as crossing the Rubicon. I expect to see queues at banks in other Club Med countries tomoorow as depositors try to get their money out. The rich Greeks got their money out to Switzerland over two years ago as they saw this coming.
The Cyprus banks lost a huge amount on their holdings of Greek sovereign debt and the only alternative to a bail out was the thing that would kill the Euro, a bank default, a bit like showing a crucifix to Dracula.
Cyprus is a small country with around 0.3% of Eurozone GDP but this panic spreads very rapidly and once it gets to Spain etc it would be terminal for the Euro.
One thing not widely known is that you can tell where a Euro note was issued from its serial number. I know a number of Europeans who check this very carefully and will only accept German printed notes. In. extremis, the Bundesbank will honour their own notes. I would not like to be holding Club Med paper or notes now.