5 Euro – Cyprus

In early 2012, Cyprus found itself at the epicenter of the European sovereign debt crisis. Its oversized banking sector, heavily exposed to the collapsing Greek economy, faced massive losses from the Greek government debt restructuring (the "haircut"). This rendered the country's two largest banks, Bank of Cyprus and Laiki Bank, insolvent and unable to secure private funding. By mid-2012, the Cypriot government, unable to bail out its financial system alone, was forced to formally request a financial rescue from the European Union and the International Monetary Fund (IMF).

The ensuing negotiations in March 2013 resulted in a controversial €10 billion bailout agreement that included an unprecedented measure for the Eurozone: a "bail-in" of bank depositors. To secure the funds, the Cypriot government was required to impose significant losses on uninsured depositors (those with over €100,000) in the failing banks. This led to the closure of Laiki Bank and the radical restructuring of Bank of Cyprus, where large deposits were forcibly converted into bank shares. Crucially, the agreement initially included a levy on all deposits, including insured ones, causing public outrage and a bank run before being hastily revised to protect small savers.

The immediate consequence was the imposition of strict capital controls for approximately two weeks—the first in the Eurozone's history—to prevent a flight of capital, severely disrupting business and shaking confidence in the banking union. The economy contracted sharply, with a deep recession and soaring unemployment. The 2012-2013 crisis fundamentally reshaped Cyprus, drastically shrinking its banking sector and forcing an economic reorientation towards sectors like tourism, real estate, and services. It also established a contentious precedent for future European banking crises, demonstrating that taxpayer-funded bailouts could be replaced by imposing losses directly on private creditors and depositors.