CHART OF THE DAY: The Gigantic Shadow Economy That's Making It So Hard To Bail Out Cyprus

The Cypriot banking system needs a bailout.

The EU, led by Germany, pushed heavily for the Cypriot banking system to contribute a substantial share of the bailout – 5.8 billion euros of the total 17 billion requested – by imposing a controversial "tax" on Cypriot savings accounts.

Market analyst Peter Tchir pointed out that, with relative ease, the U.S. passed a $60 billion rescue package for areas of the Northeast that were damaged by Hurricane Sandy, but the EU – Germany – isn't even willing to pony up a tenth of that amount to avoid all of the problems that have arisen as a result of the forced haircut to which Cypriot depositors are now being subjected.

The reason is pretty clear: Germany has a looming federal election in September, and it doesn't look good for them to support a bailout of a banking system with a reputation as an off-shore tax haven for moneyed Russian interests.

"We have argued many times before that the issue of wealth redistribution could become a source of friction within the monetary union," says NBF Financial Chief Economist and Strategist Stéfane Marion. "This is all the more true when it involves a member state with a large 'parallel' economy."

To put a number on it, Marion says that 26 percent of GDP in Cyprus is the result of "economic activities and the income derived thereof that circumvent or avoid government regulation or taxation."

That's quite a bit. Not only does it show why there's no political appetite for a bailout of Cypriot banks in Germany, but also how much Cyprus stands to lose if its status as a tax haven is jeopardized, which seems to be the direction this whole saga is headed.

NBF Economy & Strategy (data via Schneider (2012)