I wanted to avoid jumping on the Cyprus bandwagon, but OK, I can’t help. As the most obvious things have already been said many times, let’s try to think about some interesting side angles:
The euro went (mildly) down instead of up
In general this is very good for the Eurozone that the euro goes down, as it creates inflationary pressure from import costs, and compensates for the ECB otherwise stern monetary policy relative to major currency peers, with all the positive impact a modicum of inflation has. So as such that’s good news, more of it please, but that’s not my main point. What we have here is the ECB not bailing out the Cypriot banks, that is not printing (more) euros to fill the hole in their balance sheet, which would make euros more plentiful and therefore cheaper. Things should go up on the news of a supply shock!
Communists against wealth tax!
It seems the “communists” in the Cypriot parliament are against what is effectively a wealth tax. I don’t know for sure if their position applies only to low deposits or to the whole thing but in general true proletarians are not long currency. They should at the very minimum support the >100K portion very enthusiastically (the higher the rate the better) and even for below 100K, I doubt that the median cash savings of ordinary people in Cyprus (or anywhere else outside Monaco) is much above 5K. So they should be fully supportive of the current proposals where the tax starts at 20K (last number I read for the draft law, probably obsolete by the time I post) which should cover the vast majority of their constituency.
Bank run on monday!
The weekend anglophone financial blogosphere was predicting a bank run in all of southern Europe on Monday. Hasn’t happened. It’s not surprising, rationally it’s been years since it has made sense for any resident of peripheral countries to keep any surplus cash (or their entire credit banking) in a Northern Eurozone bank, to avoid both local banking failures and hedge the euro exit risk. Electronic transfers (SEPA) work well and your euro payment card works everywhere at the same price as domestically — and sometimes better, SEPA can be faster than legacy domestic transfers, and you escape domestic out-of-network cash machine levies! So, whatever the reason that made southerners not run so far (or very slowly, which is not a run) is persisting. It could always change but again hasn’t.
A stimulus measure?
If your savings are at risk, then one of the best way to diminish that risk is to spend them. Perhaps frightening everyone will take some away from (excess) savings, which could actually be positively helpful in the current circumstances. In general I think a positive of this is to show that bank deposits are not sacrosanct (esp above >100K or wherever petty cash limit is set) and that could have some positive aspects. Fully guaranteed deposits are in effect synthetic government bonds, with the benefits of the guarantee in private hands, and that cannot sustainably work out fairly. Now the art is in not blowing up the remaining useful bits of the financial system in the process.