Looks like we won't have to send a gunboat to Cyprus after all, their MPs voted down the proposed cash grab. Even the government didn't vote for it. In fact not a single MP voted for it - although some abstained. Maybe they didn't fancy being torn apart by the mob outside the parliament building.
Let's have a quick recap of the Cyprus situation....
After the fall of the Soviet Union in the 1990's everything that wasn't nailed down was stolen by 'oligarchs' and sold to the West. This meant that while most Russians got poor some got very rich indeed. They needed somewhere to stash the cash a bit safer than Mother Russia and they also preferred to live outside Russia.
They moved all over the world of course, perhaps a quarter of a million came to the UK, but Cyprus was also attractive: good sunny weather; welcoming no-questions-asked banking system; only a 30 minute flight to Israel (a surprising number of oligarchs are Jewish) and a British-derived legal system you could actually trust - British courts still have ultimate jurisdiction over some aspects of Cypriot finance.This mess could still end up in the Strand at the Royal Courts of Justice.
So hot Russian money moved to Cyprus, along with the retired gangsters who owned it. They say about €20bn in all. The money was deposited in Cypriot banks who grew fat and powerful. These banks needed somewhere to invest this cash pile and Cyprus and Greece have close relations and share a common language and Greek bonds used to pay fantastically good returns so the Russian cash got invested in Athens.
Then last year, you will recall, the Greeks ran out of money and gave their bondholders a 75% haircut. The Cypriot banks were effectively bust - they couldn't pay back the Russian gangsters. Fortunately the European Central Bank stepped in with a line of credit to keep them in business.
That credit is all gone now. They need more. But the "troika" ie the ECB+EU+IMF said no more cash unless you find €5.8bn from your own resources, why don't you raid the cash deposits of your residents?
Hence yesterday's fiasco.
But what to do now that has failed? Well the Cypriots have some assets they could sell. They have a deep water port; they have some unexploited gas deposits they could sell 'futures' in. They also have the possibility of getting more loans from the Russian government. Unfortunately these would likely not add up to enough to satisfy the troika.
But they are already talking about using the 'nuclear' option - leaving the euro and restoring the Cyprus pound. Once they have their own currency they will be able to print as much of it as they like and perform an orderly default in which euro depositors get repaid in pounds of dubious value.
There isn't much time here. They've had their long bank holiday weekend. The banks were supposed to re-open yesterday, but they didn't. The banks cannot re-open until the crisis is resolved because they would be instantly ripped to pieces if they did. Every depositor would want to withdraw every cent.
There is a distinct possibility now that the banks will never actually re-open; not to do business in euros at least. However, with the Cypriot thumb poised over the nuclear button the troika may blink first and hand over the cash required.
We should know pretty soon.