Jefferies strategist David Zervos is his typically restrained self in his latest note on the Cyprus bailout, which involved taxing all bank depositors in a one-off confiscation:

What happened to Cyprus on Friday evening was one of the most significant developments in the Eurozone since the Greek election last summer. To tax the bank deposits of savers sends an ominous message to the entire global investment community. All of us should really take a moment to consider what the governments of Europe have done. To be clear, they initiated a surprise assault on the precautionary savings of their own people. Such a move should send shock waves across the entire population of the developed world. This was not a Bernanke style slow moving financial repression against risk free savings that is meant to stir up animal spirits and force risk taking. This is a nuclear war on savings and wealth - something that will likely crush animal spirits. This is a policy move you expect from a dictatorial regime in sub-Saharan Africa, not in an EMU member state. If the European governments can clandestinely expropriate 7 to 10 percent of their hard working citizen's precautionary savings after the close of business on a Friday night, what else are they capable of doing? Why even hold money in a bank account? Are they trying to start a bank run?

He's not a fan of the move, which he sees as having happened solely because Angela Merkel wants to get re-elected and there was no appetite for German taxpayers or politicians to see any more money go to "Russians" who have a lot of money in Cypriot banks.

He sees the fallout as potentially severe:

...if the Cypriot parliament agrees to the tax, we should also see some serious instability develop at peripheral banks. Why keep your money at a Spanish or Italian bank when you can jump to Germany or France. And why even keep money in the Euroarea banking system at all. We should see huge outflows. Maybe I'm wrong and deposits stay sticky, but the risks here are HUGE and SCARY.



Right now, I would argue that the risk of an EMU exit by Cyprus is real. And this is much more of a clear and present danger than anything happening in Italy or Spain. And even without passage of the tax, the potential for a bank run is very real. As a consequence, these events are MUCH MORE important than the Italian election results, or frankly any other issue in Europe.

Read more Zervos at Markit hub --->