The stealing of bank deposits is a complete no no but the IMF and EU have done it anyway. The outcome will be very unpleasant. When Kings raid people of their money to fund wars, the outcome is always revolution.
Cyprus is a basket case (fintag Oct 2011 - Cyprus is symptomatic of the European Nightmare) (fintag Feb 2013 - Cyprus isn't worth saving) and should have been left to blow up. Of course socialists like to control everything and weighing up a few banks blowing up against a massive run on the banks was easy; taxing the depositors to pay for the recklessness of the bankers and incompetenance of the regulators. Yep, on paper a great idea but in reality the catalyst to serious banking instability. Big banks get an unexpected blow job and euro markets a nasty bit of volatility.
The upshot is next week there will be people moving money from the banks and hiding it under their mattresses (standard) or even worse moving it to the big banks. These "big banks" have enough cheap cash as it is but will take it anyway to help bolster their capital and keep the regulators happy. Big banks will get even bigger and too big to bail out. The small banks will disappear and we will all end up in an even worse position.
As much as we all love electronic money, cash will becoming even more King than Mervyn.
I can see photos of ATM lines next week in countries from Spain to Ireland. Your money is safer in your hands than in a faceless bank that allows unelected bodies to come and take your money to help bankers keep their bonuses. Meanwhile, euro markets are going to tank and lots of back peddling and vol will make the recent equities rally become a long forgotten memory.
You couldn't make this up.
Cyprus ministers face violent threats (bbc)
UK to bailout out Cypriots (telegraph)
Euro Markets to crash (washingtonpost)
Anarchy here we come (activistpost)
Russia moves cash and assassins to the UK (guardian)
Bankers to be given bodyguards by the ECB.