This time IS different

Says Marco Annunziata about Cyprus and its finances;

Cyprus is a small country with an outsized banking system created via lax regulation.

• ...the deposit tax is an efficient way of “bailing in” foreign creditors, given the high share of non-resident deposits.

 To wit; Cyprus’ banking system has grown disproportionate to the size of the economy: its total assets are over seven times GDP; deposits are about four times GDP, and 37% of these are by non-residents, mostly from outside the Eurozone. The banking system faces an estimated recapitalisation need of 10-12 billion euros, equivalent to about 60% of GDP.

Thus, all the alternatives open to Cypriot politicians are bad.  It's just a matter of choosing the least unpalatable (and selling it to a public mostly ignorant of the hard harsh realities of economics and finance).

On the (not quite as dark) other hand;

This is not new. In Italy, the Monti government has already raised or introduced taxes both on income and wealth (house taxes). Italians will also still remember the precedent of an extraordinary tax on bank deposits in 1992, though of a much smaller magnitude (0.6%). (Incidentally, it is worth noting that zero interest rate policy is also effectively a tax on bank deposits.)

• Finally, the ECB has been crystal clear in its commitment to avoid systemic instability in the Eurozone, and could step in to calm any signs of excessive anxiety in other Eurozone members.

As Willie Sutton famously said, Banks are where the money is.