And that will work against you when you need help from "normal" countries. Cyprus got absolutely no mercy from them, take it or leave the EU. They cannot leave EU so they must do anything else asked.
Good lord, do you ever read the news? In case you missed it, the last 2 weeks have involved non-stop negotiations with various parties as the people Cyprus pressured the Parliament of Cyprus into rejecting the original deal, with had largely been designed by the Germans. And the deal now being considered does not resemble any deal that was suggested by the Germans or the Russians, so clearly Cyprus can say "No", at least enough to gain some flexibility. And Cyprus can certainly leave the euro, thus endangering the long run health of the European project -- and considering how much Germany has benefited by having no restrictions on its exports to the rest of Europe, this would be bad news for Germany.
But even more crucially, there is the question, has Cyprus already, de-facto, left the euro?
http://economistsview.typepad.com/economistsview/2013/03/fed...
The new deal, AFAIK, confiscates all money over 100K euros in the second largest bank, the other one was a 10% tax on all.
Either way, Greece had some leverage and used it to its advantage. Despite the huge cuts they were forced to make, they never met the goals set and they were lowered or extended. Cyprus it seems, has very little to no leverage.
They can surely leave the Euro, like I can leave my wife, drop the lease and quit the job at the same time with nothing else waiting.
It's not a confiscation of all the money. Accounts are frozen, but the final levy (solely on accounts >€100k rather than across the board) are expected to be around 30%:
> Asked about the level of losses on uninsured depositors in Bank of Cyprus, he told state radio: "The assessment is that it will be under or around 30 percent."
> "Reports have suggested that eurozone leaders, particularly in Germany, insisted on the levy because of the large amount of Russian capital kept in Cypriot banks, amid fears of money-laundering. However, German Finance Minister Wolfgang Schaeuble said he and the International Monetary Fund had been in favour of "respecting the deposit guarantee for accounts up to 100,000" euros."
So to me it sounds more like the Cypriot government initially tried to put more of a burden on small deposits but now agreed to do it the way the EU always wanted.
When one invests over 100% of one’s capital in a single
financial instrument – even if that instrument is considered
low risk – it is indicative of poor risk management.
[..]When bankers do the same with investors’ money –
because their bonuses are linked to short-term income
while the losses are underwritten by the taxpayer – the
same behaviour is more than just poor risk management – it
is ‘casino banking’. [1]
[1] http://www.centralbank.gov.cy/nqcontent.cfm?a_id=12472&l...
Turkey occupies roughly half of the country and has more soldiers than Cyprus has inhabitants. If they left EU, in addition to the huge mess created, they would lose whatever protection EU membership offers them. A tiny country, in a strategic location and surrounded by enemies needs a big brother.
Just this week: "“The idea of the Greek Cypriot Administration of Southern Cyprus (GCASC) to offer the natural resources of the island as collateral for a solidarity investment fund or any other borrowing scheme to be established due to its current economic crisis, ignoring the inherent rights of the Turkish Cypriots who are co-owners of the Island, is a dangerous manifestation of the illusion of being the sole owner of the Island, which may lead to a new crisis in the region,” the Foreign Ministry said in a statement on Saturday." http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_24/03...
Number 2 reason: Integration with EU, such as travel, bank deposits, pensions etc etc. decoupling would mean a huge mess.
Number 3: If the left, their banks and econ would collapse anyway, so they still lose with no possible upshot.
And letting the banks fail would do the island more of a favour in the long run since continued propping up just facilitates more wealth redistribution through huge, unmanageable debts to the IMF.
Not the first (or last) time the tiny nation of Cyprus has been given the shakedown by the big boys :(