Salmon: Cyprus, It's Not Over Yet

NEW YORK ( Reuters Blogs) -- This was not a good weekend for Russian billionaires. First, Boris Berezovsky was found dead at his English country estate. Now, all the uninsured depositors (read: Russian plutocrats) at Cyprus' two largest banks are going to be hit much, much harder than they feared they might be when the Cyprus crisis first erupted last week.

Back then -- a long, long week ago -- Cypriot President Nicos Anastasiades stood firm: There was no way he would allow uninsured depositors to lose more than 10% of their money. What a difference a week makes: Now, if your uninsured deposits are at the Bank of Cyprus, you're probably going to lose about 40% And if they're at Laiki, you're going to lose everything.

The agreement, between the Cypriot government and the troika of the EU, IMF, and ECB is a bold and brutal geopolitical power-play. There might be language in the official communique about how "The Eurogroup looks forward to an agreement between Cyprus and the Russian Federation on a financial contribution," but given the billions of euros that Russians are being forced to contribute unwillingly, the chances that they'll happily throw a bit more money into the pot have to be tiny.

In the Europe vs. Russia poker game, the Europeans have played the most aggressive move they can, essentially forcing Russian depositors to contribute maximally to the bailout against their will. If this is how the game ends, it's an unambiguous loss for Russia, and a win for the EU. For one thing, there won't be any capital controls: that's a a good thing. (Some deposits at Bank of Cyprus will be frozen, which is a kind of capital control, but there aren't corralito-style barriers on the general movement of euros in and out of the country.) On top of that, public markets have been left unruffled: there's been no panic on Europe's bolsas, partly because the biggest hit has been taken by private Russian citizens.

Much more importantly, the two main vectors of contagion -- hitting insured deposits, and exiting the euro -- have been avoided. And most elegantly of all, from the troika's point of view, the whole thing has been constructed under existing bank-resolution authorities, which means that no vote needs to be put to the Cypriot parliament, and therefore no amount of Russian pressure can veto the deal in Nicosia.