Rise a Pauper

Because of exceptionally poor decision making on the part of Cyprus leadership, both before and during the recent crisis, Cyprus is now consigned to a very dark future of economic depression and failure.

As Cyprus is about to find out, caving into the international bankers seems like the right thing to do at the tail end of some of very intense and high-pressure meetings. But it means years and years of penury and capital 'D' Depression.

Hopefully the President of Cyprus has some very good bodyguards and a sweet golden parachute all worked out for himself, because he's just ruined his nation, as well as made a lot of very powerful Russians into very angry and permanent enemies.

In ancient English tradition, royalty can bestow a knighthood on a worthy subject.  The ritual involves the subject going to their knees and being tapped on each shoulder with a sword while an incantation is spoken.  The ceremony ends with the final three words: "Rise a knight!"

In our modern day version of this, where the subject is a weak nation state like Greece or Cyprus and the 'royalty' is the international banking club, everything is the same – except after being forced down to one's knees, the final three words in the script now read: "Rise a pauper!"

That is, unless Cyprus were to elect to leave the euro.

A Quick Review

The timeline for Cyprus is particularly instructive.

1. In February 10, 2013, the Financial Times published an article titled "Radical Rescue Operations Proposed for Cyprus," which voiced concerns that depositor money might get tangled up in future bank rescues.
2. On Feb 11th, in a letter to Cyprus bank CEOs, the head of the Cyprus central bank, George Georgiou, firmly stated that the idea of depositor impairment is beyond "serious consideration" as it would be legally unfounded, contradict provisions of the Cyprus Constitution, and go against the First Protocol of the European Convention of Human Rights. 
3. On February 28th, Cyprus' departing finance minister warned that by May, we'll run out of money.
4. On Saturday March 16th, Cyprus residents awoke with shock to find their bank accounts frozen and word of an impending depositor tax.  After some haggling, accounts under 100k euros were to be honored, and those over that amount would suffer a haircut of between 15% and 30%, depending.