No. of Recommendations: 6
Now, since it is a virtual 100% certainty that every major depositor will flee Cyprus as soon as possible with as much of their cash as possible - and even reportedly 70% the local depositors have applied to remove all their cash - there is no real compelling reason for Cyprus not to simply declare it will not stand behind its obligations (outright default) and accept the inevitable expulsion or withdrawal from the euro zone.

Cyprus is a bit different from Greece or Italy. Cyprus' government has been, comparatively, fairly frugal. Cyprus is in reasonably good shape to meet all of its obligations except one: its deposit-insurance commitment. It's Cyprus' BANKS that are in deep kimchee, because they hold large quantities of Greek government bonds.

One option for Cyprus - one that the EU and Russia desperately want them to not even realize is available - is what Iceland did: honor deposit-insurance commitments only to their own people.

Another that would be popular with many Cypriots but not most foreign depositors in Cypriot banks, is to honor the deposit-insurance commitment exactly as written and no more. That would involve no loss at all for depositors with less than euro100K, but a very large percentage loss above that level.

The additional catch is that both of these would probably involve closing the Cypriot banks at a very large loss to their current shareholders and bondholders, and other EU banks feature prominently among those groups. NOTHING can EVER be permitted to threaten the big banks of the EU (or the US).
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