The German plan has been obvious for quite some time, and the Cyprus bailout gives more supporting evidence for it.
A euro breakup would be disastrous for Germany, the greatest beneficiary of the current Eurozone monetary system. The single most accurate predictor of electoral success is a strong economy, which virtually assures the reelection of the incumbent; hence, Merkel must preserve the status quo.
This position should be supported by the German voters who also want a strong economy, but they do not see it this way. Those who benefit from privilege are blind to it, and Germans do not believe that the euro has much to do with their economic success. They would point to their superior system, which was not all that superior before the creation of the euro:
Note the dramatic change in Germany’s current account following the introduction of the euro in 2002.
Since Germans believe that their prudent ways have led to their success, they very much resent the bailouts of the periphery. In their minds, why should they give German money away to spendthrifts?
Explaining to German voters that they are the greatest beneficiaries of the euro is too nuanced an argument to make during a campaign, so another plan has arisen. Basically, as little German money to kick the can past elections is handed out but only in return for strict punishment. As long as the bailout recipients are made to suffer for their money, the transfer payments are made palatable, and there is no electoral backlash.
This has been the strategy in Ireland, Greece and Spain, so no one should be surprised about Cyprus. For the most part, no one was, and markets yawned. The next time a country needs German money to stay afloat do not be surprised when more “one off” confiscations become part of the bailout.