I don't understand this question. What was the alternative? As people keep pointing out, Cypriot banks are overwhelmingly funded by their depositors. You can't just go after the bondholders in this case. And "do nothing" would have been worse, possibly by an order of magnitude, for depositors.

There are alternatives that amount to basically the same thing and are also disruptive, but perhaps differently. For example, they could leave the Euro, print money to bailout, let inflation rise, let their new currency devaluate, etc.

It's also very risky and results in savers losing money. It's also less progressive than what they are proposing as it's strictly just a flat percentage of assets.

It sounds unbelievable enough that I really can't help but wonder if they're doing it on purpose. But assuming that were true, what have they to gain from doing so?