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The events in Cyprus could be smelling like Orange blossom again if a deal to agree a bail-in of savers succeeds in a few hours’ time. But there is a greater chance that an escaped elephant from a Berlin zoo would negotiate a crate of grapes without crushing any of them.

If Cyprus walks up the altar of reform and agrees to tax its savers it will not only be setting a precedent for other eurozone nations perilously in need to boost their finances. It will also be pandering to the enormous pressure that the European Central Bank has put the tiny island under – misguidedly at that.

Tonight Cyprus politicians approved three key bills. But don’t get too euphoric: they are pathway bills to pave the way for securing a broader bailout. A lot of drama surrounds the bullying tactics of the ECB at a time when we learn that actually Cyprus is not at risk of bankruptcy until June – three months away.

Cyprus produces a miniscule EUR20bn contribution to the eurozone economy’s EUR9.4tn GDP and unlike in Greece, the ECB and European national banks actually have just a EUR27bn exposure to the island.

And unlike Greece, Cyprus hardly has any senior bondholders. It may regret that it doesn’t, because now the only haircuts that can be relied on are from savers.

But the point of all this is that the ECB – driven by pressure from an unrelenting Germany which wants to wave the stick ahead of September’s Federal Elections – has made a monumental miscalculation by insisting that Cyprus will lose its liquidity lines as soon as Monday if neither Nicosia’s Parliament passes through a savers tax by then or the other troika members EU and IMF fail to agree a new rescue plan for the debt-stricken island.

Different numbers have been bandied around this week about just how much debt the Cypriot banks are holding. But the New York Times today reported that it is running at EUR30bn – which is more than the entire value of the economy.

Yet the government and savers are not running a deficit. It is the banks who are.

Russia turned away a Cypriot delegation this week who asked for a measly EUR10bn loan to cover their problems. Put into perspective the amount Cyprus actually needs is equivalent to one German Bund and one Bobl or Schatz auction!. Given that Russians are a large part of the savers in Nicosia one can only speculate what it is Moscow knows about Nicosia that made them refuse.

But there is a way to avoid setting a precedent raiding savers or taking Russian cash. It is one that, before the crisis mushroomed might have even worked for Greece. But it is one that would surely work more effectively in Cyprus given the limited eurozone banking exposure to the island.

Do an Iceland. Quite literally, Cyprus ought to quit the eurozone and possibly even the European Union, by way of a temporary suspension of membership.

It has been said that Cyprus would suffer because of its debt pile. But that is a fallacy.

The purpose of exiting the eurozone would be to put Cyprus’s house back in order without pressure from outside. Rather, Cyprus should consider releasing itself from the ECB’s straightjacket and simply melt down the local banks.

Iceland did it rather than accept Russian money. And Iceland didn’t even have the benefit of a European Union membership to expect international assistance. Yet the banks were punished for their misdemeanours and now are back, leaner, fitter, and the Icelandic economy is growing again.

If it worked for Iceland, why not Cyprus?

Membership of the eurozone was based upon hitting certain fiscal criteria. So why is it not the case that when those criteria are breached, the nation gets a temporary suspension? As soon as the nation qualifies, it comes back into the fold – if it still wants to.

The brutal reality….from the fumbling way the banking crisis was dealt with by European leaders in 2008 through to the setting up of a half-baked European Financial Stability Facility through to handling Cyprus…is that the European Union model was built on ideals and fantasy.

It was all about ever-closer integration and solidarity. A bit like Soviet communism if you think about it. But just like the propaganda of the East, so too the EU is built on fiction, double standards and convenient oversights of “what if something goes wrong?”

That is the question. The EU has never really thought about what happens if an external crisis like the US-initiated Credit Crunch come over to Europe.

Even if Cyprus is saved today it will be an empty victory. The real problem will continue to depress the eurozone and line us up for another flashpoint in the crisis. Well, can’t complain: at least it gives journalists and market analysts something to write about for a decade.