“Cyprus! Who cares about Cyprus?” you say. Well, you need to start paying attention now.
To recap for the inattentive: Cyprus (full-fledged member of the eurozone and current president of the EU) needs an emergency bailout because its banks are insolvent and it is running a very large and rapidly growing budget deficit. Its finances are out of control. It has no market access and its bonds are rated close to default. The banks are temporarily living off of liquidity support from the ECB, but the ECB isn’t supposed to lend to insolvent banks, so that cannot continue for much longer.