It is a practical matter (mostly). The Eurozone uses the same exchange rate and currency but doesn't use a standardized interest rate among members. When the standard currency went into effect, each member signed an agreement to keep their debt levels and interest rates at a low level to ensure the integrity of the economic union. Germany and France broke the agreement several times. Cyprus could be forced out of the Eurozone by force for breaking the agreement, but since France and Germany can't follow it either, it's unlikely to be invoked.
The varied levels of interest rates have caused jobs to move to nations with lower interest rates, namely Germany, since it also has strong manufacturing. The debt levels of Cyprus only gets worse in this situation.
Usually when a nation is in high debt, it is able to inflate away much of its debt. Cyprus can't do this because it has an artificially strong currency, the Euro. A nation in as much economic distress as Cyprus should have a very weak currency. Weak currencies promote exports and reduce debts.
Reference: Causes of Eurozone crisis