The paper notes are at least tangible. The "money" people in Cyprus thought they had in their bank accounts evaporated into thin air along with the banks' bad assets. Some are realizing (too late) that they would have been better off with the 10% "haiscut" originally offered by the ECB. Their money simply no longer exists. No one has "taken" their money. Depositors "gave" it to the banks to gamble with. The bankers' bets lost. It's as simple as that.
The really interesting thing about the crisis is the behavior of the ECB. That the ECB would not simply back up ALL of the deposits in Cyprus is very telling. 13 billion euros is rather insignificant to them. If the ECB were acting in an inflationary manner it would have been a done deal already. Their reluctance shows that attitudes are changing and the effects are deflationary, not inflationary.
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