"Gaming the Cyprus Negotiations (Updated)"

naked capitalism does the heavy lifting:

The state of play in Cyprus is that negotiations in Parliament are underway, with the hope of a yes vote on a “Plan B” today (see update at the end, this is looking a lot rockier than conventional wisdom surmised). The Cypriot officialdom has allowed for slippage in this timetable, with the bank holiday in effect till Thursday. The latest events were largely a nothingburger, aside from the big news of the failure to approve the president’s plan yesterday: European ministers confirmed that they’ll approve an agreement so long as Cyrpus obtains €5.8 billion from depositors. Monday night, President Nicos Anastasiades gave his version of the Hank Paulson armageddon speech on national TV, laying out the fact that no deal means an immediate collapse of “one bank” (presumably Liaki), and a possible exit from the Eurozone.

The widespread assumption is that the Cypriots will fall into line, since the alternative really does look even uglier. But the runway is pretty short. The government could conceivably extend the bank holiday through Friday, which means through the weekend. But anything beyond that likely starts to eat at the real economy.
Moreover, even getting a deal still will have a big, negative economic impact in Cyprus. Deposits are certain to flee, so the bank crisis that was hoped to be averted is still a real possibility. After all, it is not clear that Cyprus will be out of the woods with this rescue; many experts expect further restructuings are in the works. Why sit around and let your ox be gored a second time? The Prodigal Greek (hat tip Guardian) notes:

No matter what today’s outcome, Cyprus’ banking system will not be the same ever again. If Germany’s intention was to reduce the size of it – closer to the eurozone average – they managed to achieve that with a masterful stroke in just one weekend.
Deposits flight combined with the sale of the Greek operations will probably leave the Cypriot banking system half the size it was on Friday night, even left with one systemic bank after restructuring.

Cannot see a smooth transition period without some form of capital controls.
By the time the dust settles, the Cypriot economy will sink and PIMCO’s adverse scenario will materialise. Many people did their best to make this a reality.

Felix Salmon takes issue with Andrew Ross Sorkin’s “those dirty Cypriots had it coming to them” for living in a tax haven. Ahem. People in glass houses should not throw stones. How exactly are tax evaders like GE and Apple any different than Russian oligarchs (some of whom evade taxes via perfectly legitimate big companies?) As Nicholas Shaxson pointed out in his book Treasure Islands, the biggest tax haven in the world is now run by the US, between Delaware and Wyoming corporations (you can hide ownership just as well via Wyoming limited liability corps as Isle of Man shells) and our friends in Caymans. By Sorkin’s logic, it would be OK to cram down everyone in Delaware because they benefitted from the local tax avoidance business....MUCH MORE