Eurogroup have agreed a deal on a 10 billion-euro bailout for Cyprus to prevent its banking system collapsing and keep the country in the eurozone.
Laiki (Popular) Bank – Cyprus’ second-biggest – will be wound down and holders of deposits of more than 100,000 euros will face big losses.
However, all deposits under 100,000 euros will be “fully guaranteed”.
The European Central Bank (ECB) had set a deadline of Monday for a deal.
Laiki will be split into “good” and “bad” banks, with its good assets eventually merged into Bank of Cyprus.
The president of the Eurogroup of eurozone finance ministers, Jeroen Dijsselbloem, told a press conference in Brussels the deal had “put an end to the uncertainty” around Cyprus’s economy.
Jeroen Dijsselbloem added he was “convinced” the new deal was better for the Cypriot people than the broader measure rejected by the Cypriot parliament last week, as it focused on two problem banks rather than the entire sector.
The deal is good news for Cyprus’s small account holders.
All deposits under 100,000 euros will be secured. But for those with deposits of more than that amount in the country’s two biggest banks – Laiki and Bank of Cyprus – the deal will come as a bitter blow.
The percentage to be levied on large deposits in the Bank of Cyprus will be resolved in the coming weeks, Jeroen Dijsselbloem said.
One key element of the deposit tax, demanded by the IMF, is that it not require a parliamentary vote.
EU Commissioner for Economic Affairs Olli Rehn said that the “depth of the financial crisis in Cyprus means that the near future will be difficult for the country and its people”.
Asian financial markets rose in early trading on news of the deal.
The deal came after hours of tense negotiations between Cypriot President Nicos Anastasiades and the “troika” of EU, ECB and IMF leaders.
Nicos Anastasiades had reportedly asked the heads of the troika if they wanted him to quit.
“Do you want to force me to resign?” Cyprus News Agency quoted him as saying, citing sources at the presidential palace.
“I am giving you one proposal, and you do not accept it. I give you another and it’s the same. What else do you want me to do?” Nicos Anastasiades was quoted as saying.
In another development on Sunday, Bank of Cyprus – the island’s biggest lender – further limited cash machine withdrawals to 120 euros a day.
With queues growing outside cash machines across the island, the second biggest lender, Laiki, also lowered its daily limit to 100 euros, Cyprus News Agency reported. The bank’s previous limit had been 260 euros per day.
Banks have been closed since Monday and many businesses are only taking payment in cash.
Jeroen Dijsselbloem said that the details of the re-opening of Cyprus’ banks would be discussed on Monday by the Cypriot government and the troika.
There is concern on Cyprus that a levy on large-scale foreign investors, many of whom are Russian, will damage its financial sector.