Will there be more contagion from the crisis in Cyprus?

The negative reaction in Europe’s financial markets to the decision to "bail in" depositors in Cyprus has been fairly muted so far. Admittedly, the euro fell below $1.30 against the dollar on Monday, banking shares in Spain posted declines of up to 5%, and 10-year government bond yields in Spain and Italy rose slightly. But there have been much bigger moves in the past and we think there could be more to come.

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