A couple of years back, when Carmen Reinhart and Belen Sbrancia updated the concept whereby governments might deal with a problematic mountain of debt by confiscating the savings of their subjects, the discussion was all about the subtle, slight of hand solutions that might be employed. Artificially cheap rates of interest might be forced on the embattled sovereign's debt, local banks might be obliged to buy mis-priced government paper, exchange controls may be erected, and so on. Ordinary people, it seemed, could be financially repressed without realising they were in fact the victims. There was no discussion back then of outright expropriation or a "tax," as insured (and uninsured) depositors at Cypriot banks are now being forced to bear. Joseph has a detailed discussion here of the peculiar circumstances that made a bailout of Cyprus particularly challenging. Senior bondholders are all but non-existent at Cypriot banks (and therefore not available to share any pain), while PSI at the sovereign level would have pushed local bond holders (local banks) over the edge and/or brought on months of litigation from foreign holders. Meanwhile, we had the spectre of German politics ("German taxpayers bailing out Russian money launderers") clashing with Russian strategic interests (owners of the said laundered money). Maybe ordinary Cypriots were always going to get it in the neck. Except that expropriation can never be straightforward in a democracy, where politicians must be seen to be vaguely fair if they are to retain power. It's this point that seems to have been mis-read in Germany generally and amongst all members of the Troika, including the IMF's Christine Lagarde, who might be regretting the boilerplate statement issued on her behalf on Saturday... I welcome the agreement reached today to address Cyprus" economic challenges. The IMF has always said that we would support a solution that is sustainable, that is fully financed, and that appropriately allocates the burden sharing. I believe that the agreed package meets these three objectives. Appropriate allocation? Cypriots, to a man and woman, simply do not agree. And when the ECB was busy last week threatening President Anastasiades with an immediate disorderly default if his government did not sign up to this shotgun bail-in, they seem to have overlooked the fact that Anastasiades has to get this all voted through. Here's what the Cypriot parliament currently looks like on the issue, courtesy of Alex White at JP Morgan: Anastasiades and co need 29 votes and they haven't got them, yet. That's why Monday's bank holiday on the island has become a two day bank holiday and may become a further extended no-fun holiday weekend. Presumably, the prospect of actually running out of cash will encourage ordinary Cypriot to accept the inevitable. The reality here is financial incarceration. Related links: ECB presses Cyprus to impose bank levy - FT A muddled and risky approach to Cyprus - Mohamed El-Erian Anger as Cypriots wake up to savings grab - FT Cyprus is a small island, they DSA things differently there - FT Alphaville