Well, it looks as if the Icelandization of Cyprus — at least in the sense of making offshore depositors take a big hit — is happening faster and more decisively than I feared. Great summary by Paul Murphy at FT Alphaville, ending thusly:

Big depositors in Cypriot banks stand to lose circa 40 per cent of their money here, which has drawn plenty of fury and veiled threats from Russia.

But what exactly can the Russians do about this? Sell euros? Tear up double taxation agreements? Murder Cypriot bankers? Medvedev and co could not have played a worse hand during this crisis — and it’s not immediately clear why.

Cyprus now has a binary choice: become a gimp state for Russian gangsta finance, or turn fully towards Europe, close down much of its shady banking sector and rebuild its economy on something more sustainable.

The choice is obvious.