to prevent debilitating bank runs, depositors need to be sure their holdings are safe. The worse-case scenario reaction is one of bank runs in periphery countries.

What is bad about this is that like everywhere in the EU, bank deposits in Cyprus are guaranteed up to €100,000. Depositors have arranged their wealth accordingly, only to be told that the guarantee has been changed ex post.

This means that depositors in Cypriot banks come to fear another round of levies. Then we would have a full-fledged bank run

The Cypriot bailout could become euro-systemic. This will happen when and if depositors in troubled countries, say Italy or Spain, take notice of how fellow depositors were treated in Cyprus. it will It will be individually rational to withdraw deposits from local banks to avoid the possibility of a confiscatory tax.

Cyprus is a good place for money parking and laundering by criminal gangs. There is a suspicion that much of the funds in the country are only there if this tax haven remains just that. Latvia is another place for hot money, but it is not in the Eurozone.

The Troika are beyond the pale, the real criminals.

I must confess, I am confused about what is BEHIND these money troubles in the EU. How did those governments and banks end up so deep in the deep poo?

My guess is that it somehow links into the 2008 financial meltdown. But how exactly?

Pensioners are losing part of their retirement savings in order to keep afloat the island's two big banks.

Mars08
The European banks made a lot of bad loans when they went on a lending frenzy---just like Wall Street--before the great financial crisis.

They are so badly in debt --bankrupt---that they require their governments to bail them out and to recapitalise. Just like the US government did with the corrupt too-big-to -fail megabanks on Wall Street. Or Ireland did with its banks.

The governments on Europe's periphery need help to bail their bad banks out--hence the necessary turn to the Troika. This lifeline (borrowing billions) with very harsh conditions attached is a debt burden for the nation state, and so we have the sovereign debt crisis.

We basically have a series of euro bailouts that punishes ordinary people ---through austerity and social regressiveness--- in order to reflate a broken financial system.

The imposed austerity means that there is no economic growth for the nation state to repay its loans to the Troika. Cyprus, like Greece, Ireland and Portugal, borrows its way to destitution.

Mars08
Some argue that the problems exist in a structural sense in the EU---namely in the relationships between the surplus and the deficit member-states.

This lead to large capital flows (from the surplus to the deficit countries) which, in turn, caused rampant asset value inflation (e.g. real estate bubbles) in the deficit economies and a growth rate that far exceeded the rate of accumulation in their exportables’ sector.

The tension from these imbalances ruptured under the strains of an imported financial crisis from the toxic derivatives in the US and the UK. This soon ignited a classic debt-deflationary spiral with the burden of adjustment disproportionately placed on the shoulders of the weakest member-states.

to save the European Monetary Union from disintegrating the European Central Bank (ECB) had to step in.

However, in exchange of being unshackled from the prohibition from acting as a lender of last resort, the surplus countries demanded that the ECB used its coercive powers to impose the greatest austerity upon the weakest member-states in the EU

Thanks for the information chaps...

So, just more fallout from Alan Greenspan's "Irrational exuberance" then?

Mars08 asks "what is BEHIND these money troubles in the EU. How did those governments and banks end up so deep in the deep poo?"

The best deep structural account that I've seen so far is in this talk by Yanis Varoufakis. It goes behind Alan Greenspan's "Irrational exuberance" to the structure and dynamics of the world economy that was developed after the 1970s by the US, using its hegemonic powers. It is a Marxist account as it highlights the importance of a surplus recycling mechanism to keep capitalism working.

It was given as a keynote speech at a conference near Brisbane, Queensland, Australia late last year. Varoufakis is often interviewed on the ABC's Radio National.

Can't stop smiling at the cartoon, though.
One of the best this year.
Is it the Economy of Excess; seems funny that people can't feel happy without,dog in the manger, seeing others copping it in the neck?
Isn't "situational bad" just a euphemism for kick in the goolies?

why should ordinary Cypriot taxpayers rescue banks at all? Shouldn't the bondholders be responsible for the bank's losses.

If the Euro banks have all these problems of bad debts then the banking system is need of reform . Either by:
(1) making the industry far more robust, by hugely increasing equity capital, or
(2) consolidate fiscal capacity and tighten regulation, to ensure adequate eurozone-wide oversight and fiscal support.

The Cypriot Parliament has rejected the EU deal. Where to next? What is plan B? Have a chat with the Russians for bail out assistance ?

"If the Euro banks have all these problems of bad debts then the banking system is need of reform "

Europe, much like Japan 20 years ago, has done too little to strengthen its financial system.

Will the average Cypriot ever regain total faith in their banking system?