FORTUNE -- The banking crisis in Cyprus is far from resolved and will almost certainly morph into a far more serious sovereign debt crisis in the near future, threatening investors around the globe. The revised bailout agreement hatched over the weekend will still leave the island nation's banking-centric economy in ruin, thus limiting the government's ability to meet its future debt payments.
In order to avoid another Greek-style economic meltdown, Eurozone officials would be wise to construct a more practical bailout—one that at the very least avoids nuking the Cypriot economy. Failure to do so will not only condemn Cyprus to years of misery, but it would also put the Eurozone one step closer to a painful breakup.
The markets breathed a sigh of relief on the news that a deal had been struck regarding the Cypriot bailout. European and US markets initially popped in Monday trading, but quickly gave up their gains as investors started to get their heads around the agreement. That is not surprising given how atrocious this deal is for Cyprus.
The hastily put together bailout still forces the nation to come up with 5.8 billion euros to qualify for a badly needed 10 billion euro loan, which will come courtesy of the European Union and the International Monetary Fund. But instead of raising the money by "taxing" bank accounts of all sizes (as what was terribly proposed last week), the plan now calls for taxing only those accounts that exceed the nation's deposit insurance limit of 100,000 euros. It also calls for the wind down of Popular Bank (Laiki, in Greek), one of the nation's largest banks, shoving all the big depositors' cash into a so-called "bad bank" where depositors could possibly lose everything.
