I may be breaking national news here.

Think your money is safe in the bank? If you’re in Cyprus, you wouldn’t think so. The government recently declared a plan to simply take money from its citizens’ bank accounts. You read that right: to just swoop in and YOINK! take people’s money. Thanks! Bye!

It’s a Third World tactic that is a real possibility in a supposedly First World country. The craziest part: Cyprus insured bank deposits! Or, they said they did. In reality, not so much.

The background is entertainingly explained in this recent Planet Money episode. Basically, Cyprus set out to be the Cayman Islands of the Mediterranean: deposit your money with us and we’ll give you a nice interest rate and ask no questions. They attracted a lot of money, especially from criminals in Russia, who loved Cyprus anyway and especially loved the banks’ lack of curiosity about the origins of their money.

In order to make money while offering high interest rates, the Cyprus banks had to make risky investments in things like . . . Greek bonds. Yeah, I know. Right?

So now they’re underwater and looking for a bailout, and the thing is, the European Union and the IMF are demanding that the government ante up. They want the government to come up with billions of Euros to earn the bailout. (The reports on the amount demanded range from 5.8 billion to 7 billion, although the lower number seems more widely reported.)

Hence the plan that emerged a few days ago. The President’s idea: we’ll levy a “tax” on bank deposits. In other words, we’ll grab money from people’s bank accounts. The Wall Street Journal has the details of the plan that was proposed:

The revised plan would have spared depositors with less than €20,000 in their bank accounts from the deposit levy. Depositors with between €20,000 and €100,000 would pay a 6.75% rate, while those with more than €100,000 would pay 9.9%. The revised plan, if it had passed Parliament, also meant that Cyprus would have fallen €300 million short of its revenue target of €5.8 billion.

Up to 10% of your money, gone overnight. Poof!

The country’s parliament has soundly rejected the bank levy, which did not garner even a single vote. However, the BBC reports:

But one senior government MP, who did not want to be named because he said discussions were not over, said the bank levy would remain in some form, the BBC’s Chris Morris reports from Nicosia. Without it, the MP said, Cyprus could not raise all the money it needed.

Banking is central to the economy in Cyprus, you see, and without the money grab, the country is probably going to fall short. From what I can tell, they will have to grab the depositors’ money or back out of the Euro. If there is a sound third option, I’m not sure what it is.

They have until Monday to come up with the money, and banks in Cyprus are closed until Tuesday. People have been withdrawing all they can from ATMs, and are otherwise screwed.

What is amazing about this is that it is essentially being required by the EU and the IMF: these organizations know that demanding the sum of money means that the government might have to raid the banks.

The interesting thing about all this is the effect it will have on other countries in the future. If you’re in Spain or Italy and it looks like the reckoning is finally coming, you’re going to look at Cyprus and think: I’d better grab everything out of the bank now, before they close it down. (Indeed, Spain may already be preparing for its own bank money grab. H/t gary gulrud.) So now, a possible crisis in the Eurozone will likely cause bank runs — which is the very thing that turns a possible crisis into a genuine crisis.

From this nothing good can come.

This could be that initial tiny domino that sets the rest tumbling. We’ll keep an eye on it.