There's been lots of excellent summary of the situation so I don't believe that I would achieve much by repeating what has been said better elsewhere.
I think Matt Yglesias does a good job of summarizing it all but so does Kevin Drum and so does Felix Salmon too. And Yves Smith has insightful numbers.
However, there is something I did want to add to the conversation.
What has truly surprise me in this tragi-comedy is the inability of the Cypriot leaders to recognise that their offshore banking center dreams were over.
Penalizing accounts below EUR 100,000 was a truly horrendous idea and ought to have been shot down as illegal as soon as someone uttered it. That it went as far as a vote in Parliament is shocking.
But even if they had somehow managed to spread the pain to small depositors, taxing accounts above EUR 100,000 at around 10% would have destroyed Cyprus reputation for offshore banking.
And so I truly don't get what they're trying to achieve by refusing to tax such accounts at 15%. 10% or 15%, the consequences will be the same. Russian biznessmen (and rich Cypriots) will be furious and Cyprus-the-offshore-banking-center will be dead.
I am not the only one to have spotted this oddity and wonder 'why?'.
However, I don't think too many people have investigated the mentality this seems to suggest from the Cypriot leaders. Sure, the behaviour seems irrational but, if there is something we know about people, it's that irrational behaviour is often the reflection of twisted incentives and/or biases.
I can't be sure but it seems to me that the Cypriot politicians suffer from a large dose of regulatory capture/clientelism aka corruption. Like in many other countries, lots of them not so small and not so clearly 'offshore banking centers for wealthy dodgy Russians', the political elites seem to have much more in common and be far more concerned for the well-being of the economic elites than for that of the common citizen.
This deficit of democracy is getting really old. I don't like to sound like a raging left-wing nutter. But the Cypriot crisis is, in no small part, self-inflicted. The general European issues are far from simple but the global recession, on the other hand, is fairly straight-forward.
When are we going to get politicians willing to represent the middle and working class? And when will the rich realise that, while gulping down large chunks of a shrinking system is awesome, short-to-medium term, it is actually a lot better to have a smaller share of a growing system. Do we really have to get the pitchforks out?