Want to See a Bank Panic? Head for Cyprus
The run on banks in Cyprus is not directly caused by the financial crisis in that country. Rather, the panic was created by the EU who is demanding that bank depositors forfeit some of their money in order to help pay for the latest bailout of an EU economy.
The euro zone agreed on Saturday to hand Cyprus a bailout worth 10 billion euros ($13 billion), but demanded depositors in its banks forfeit some money to stave off bankruptcy despite the risk of a wider run on savings.
The eastern Mediterranean island becomes the fifth country after Greece, Ireland, Portugal and Spain to turn to the euro zone for financial help during the region's debt crisis.
In a radical departure from previous aid packages - and one that gave rise to incredulity and anger across the country - euro zone finance ministers forced Cyprus' savers to pay up to 10 percent of their deposits to raise almost 6 billion euros.
Parliament was due to meet on Sunday to vote on the measure, and approval was far from assured.
The decision prompted a run on cashpoints, most of which were depleted by mid afternoon, and co-operative credit societies closed to prevent angry savers withdrawing deposits.
Almost half Cyprus's bank depositors are believed to be non-resident Russians, but most queuing on Saturday at automatic teller machines appeared to be Cypriots.
President Nicos Anastasiades, elected three weeks ago with a pledge to negotiate a swift bailout, said refusal to agree to terms would have led to the collapse of the two largest banks.
"On Tuesday ... We would either choose the catastrophic scenario of disorderly bankruptcy or the scenario of a painful but controlled management of the crisis," Anastasiades said in written statement.
In several statements since his election, he had previously categorically ruled out a deposit haircut.
"My initial reaction is one of shock," said Nicholas Papadopoulos, head of parliament's financial affairs committee. "This decision is much worse than what we expected and contrary to what the government was assuring us, right up until last night," he told Reuters, without saying whether he would back the measure or whether he thought it would pass.
Papadopoulos is vice-chairman of the Democratic Party, a partner in Cyprus's centre-right ruling coalition and whose support in parliament will be crucial to pass any haircut.
The government has now postponed a vote on the bailout and depositor haircut until Monday, probably because they don't have the votes to pass it. It's a similar situation that existed in Greece when the harsh austerity measures demanded by the EU were opposed by most citizens and politicians refused to walk the plank and approve them.
So what would you do if you heard that someone was going to reach into your checking account and take out 10% to pay for a bailout of banks that isn't your fault? Anticipating trouble, the Cypriot government banned all wire transfers over the weekend and declared a bank holiday on Monday.
One pensioner had it about right: "They call Sicily the island of the mafia. It's not Sicily, it's Cyprus. This is theft, pure and simple."
The problem with the banks is that they were dumb enough to invest in Greek government bonds -- and the resulting haircut of 50% hit them hard. And there appears to be some resentment among Cypriots of their EU overlords:
"I'm extremely angry. I worked years and years to get it together and now I am losing it on the say-so of the Dutch and the Germans," said British-Cypriot Andy Georgiou, 54, who returned to Cyprus in mid-2012 with his savings.
The beautiful island nation with the EU's smallest economy is getting a foretaste of what's in store for most of the rest of Europe.