While small, the Cypriot bank bailout is causing heartburn across the Eurozone. At its peak, the banking sector had assets eight times GDP and now needs $13 billion. If Cyprus borrows the money, their debt-to-GDP ratio becomes unsustainable. Writing down sovereign debt won’t work because it’s held by the banks and forcing a haircut on depositors will result in massive withdrawls in Spain, as markets expect a Spanish bailout next.