The Cyprus situation is clearly a sign of disfunction within the EU itself. Uniting all these economies is increasingly looking like a foolish endeavor and as push comes to shove its only increasing long standing enmity between nations. Of course deep thinkers with badly timed puts are quick to assume it will happen here too.
This was always the case that creditors could take a haircut over the insured amount. As a matter of fact, it already occurred in other EU member states only a few months ago, but the difference was that shareholders-bondholders also took a haircut-even senior bondholders. That should have been the case as well in Cyprus.