Logically, what happens in Cyprus should stay in Cyprus. With a population of just over 1 million and an economy that's a mere 0.2 percent of the 17-nation eurozone, the country seems too small to matter on the world stage.
Yet, that's where it is — and with good reason: A proposed rescue package for Cyprus' ailing economy would set a powerful precedent by nullifying government guarantees of bank deposits up to ?100,000 (about $130,000). The rescue would impose a one-time "tax" of 6.75 percent on deposits under the threshold. Deposits above the ceiling, which aren't guaranteed, would suffer a 9.9 percent tax.
"Until [the weekend before last], "it was assumed that deposits were safe," says Nicolas Veron of the Peterson Institute for International Economics. "This is a watershed event. We are entering a new world where deposits are no longer safe."
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