In the past few days I read lots of opinions both in favour and opposed to the Cypriot bank bailout. You have your standard arguments against; that this could cause a run on the banks in other weak countries, that it is a bad precedent to go after insured deposits, that this could challenge Cyprus's place as a banking hub (etc.). And you have your standard pro arguments; that everyone knows Cyprus is a special case, that the bail out amounts to over 50% of Cyprus's GDP, that Cypriot banking customers should have seen this coming, and that many of the depositors are foreigners who have long enjoyed interest rates way in excess of the tax they will be made to pay (etc.).
But the most important point is that this is yet another blow to global investor confidence. Already investors have had to endure almost five years of worrisome financial news; bail outs that come down to the last minute, central banks that have all but abdicated their most powerful monetary tools, a feckless and divided American government seemingly insistent on shooting itself in the foot (etc.). The last thing investors needed to see was pictures of mobbed Cypriot banks and ATMs as worried customers tried to withdraw cash. The last thing they needed to see was the saviours of the Eurozone (people who save) being penalised.
Confidence is a political buzz word, yes, but it is also a tangible factor in entrepreneurship and economic development. Unless you are a major economic or policy wonk it is doubtful you knew this strange bail out was coming. It is likely you did not find out many of the details until you woke up to find stock markets around the world (bar some exceptions like the Nikkei) having a 'correction'. And unless you are an economic or policy wonk it is doubtful you are confident there isn't another little surprise looming on the horizon. Unless you are an economic or policy wonk there is little incentive to take your money out of your mattress in the foreseeable future. That is the problem with the way the Cyprus bailout has unfolded.