It's a sad state of affairs for the Eurozone, when a member state is forced to go cap in hand to Moscow for a bail-out. You kind of have to feel sorry for the Cypriots, as a small island they naturally sought to diversify their economy away from tourism, and agriculture, by looking to expand financial services.... bit like the UK, really, but also before it, Iceland, Kazkahstan (from commodities), Ireland, and interestingly also the likes of Malta and Lebanon. And, one of the lessons of Iceland, Ireland, Kazakhstan, et al, was if you are going to expand your balance sheet, don't rely on wholesale financing, and they did n't, hence the big deposit base - focus again on Lebanon and Malta therein which also have overly large financial sectors, funded largely by overseas depositors...that had been a boon until the latest move by the Troika. And also if you look at the asset side of Cypriot banks, the problem seems to have been their Greek bond exposures, mainly - actually the Cypriot real estate market has been slow to collapse (surprisingly - I know as I had been looking to buy for some time, and found that while activity is limited, prices have not dropped much). On the Greek bond front, it was kind of natural for the Cypriots to have large G-bond exposures, given their close historical and cultural ties to Greece, and given that Eurozone leaders were saying in the run up to the problems in Greece that no Eurozone country would default/restructure - kind of no longer worth reading Eurozone leaders lips, more like "they speak with forked tongue" after the latest Cypriot deposit gaffe.

Cyprus in my mind is more a case of pure contagion from Greece, and the Eurozone should be more sympathetic. Indeed, I think Cyprus' problems are quite different to those of Greece, and there seems to be a lot of racial stereo-typing going on in N Europe when it comes to Cyprus this time around...Cypriots generally have struck me as hard working and entrepreneurial...maybe a bit too much now with hindsight, and given the large CIS banking/financial sector links - but which Germany et al, seem to be penalising them now for...and as if Germany does not have equally close relations with Russia - e.g. remember the Schroder-Putin relationship, and has anyone looked at the board for Northstream recently? Plus also the weight of Russian bank deposits in the German - and admittedly UK banking systems.

Source: bne