Europe's debt crisis czar has promised an unprecedented raid on Cypriots' bank accounts will not be repeated.
Eurozone finance ministers agreed to a tax on Cypriot bank deposits as officials unveiled a €10 billion ($12.6 billion) rescue plan for the country, the fifth since Europe's debt crisis started in 2009.
In a move that has caused shock and dismay, Cyprus will impose a levy of 6.75 per cent on deposits of less than €100,000 - the ceiling for European Union account insurance - and 9.9 per cent above that.
Asked whether a future EU-mandated bank levy can be categorically ruled out, European Union Economic and Monetary Commissioner Olli Rehn said: "It can and there is no concrete case where it should be considered."
Mr Rehn said he did not expect an adverse market reaction to the precedent-setting tax on deposits both above and below the insured limit of €100,000.
"Market forces understand that the problems of the Cypriot banking sector were so huge that we needed to take very substantial measures," he said. "This kind of stability fee is clearly a much better choice from the point of view of financial stability and Cypriot citizens than a full-scale bail-in, which would have led to very chaotic consequences in the Cypriot economy."
However, analysts said the move would increase pressure on the euro. Chief economist at Berenberg Bank Holger Schmieding said the risk it could backfire was "not zero" and Europe was in "unchartered territory again".
The measures will raise €5.8 billion, Dutch Finance Minister Jeroen Dijsselbloem, who leads the group of euro-area ministers, said after 10 hours of emergency talks in Brussels. The euro region's bailout kitty and, possibly, the International Monetary Fund will look to make up the shortfall. A partial "bail-in" of junior bondholders is also possible.
'The European Central Bank will use its existing facilities to make funds available to Cypriot banks as needed to counter potential bank runs.
Depositors will receive bank equity as compensation.
Cypriot Finance Minister Michael Sarris said the plan was the "least onerous" of the options Cyprus faced to stay afloat.
"It's not a pleasant outcome, especially of course for the people involved," Mr Sarris said.
While the tax on deposits will hurt wealthy Russians with money in Cypriot banks, it will also sting ordinary citizens. Some ATMs have run out of cash, general manager of the Co-operative Central Bank, Erotokritos Chlorakiotis told state-run CYBC.
Funds to pay the levy were frozen in accounts immediately, ECB executive board member Joerg Asmussen said. The levy will be assessed before Cypriot banks reopen on March 19 after a March 18 national holiday. "As it is a contribution to the financial stability of Cyprus, it seems just to ask a contribution of all deposit holders," Mr Dijsselbloem said.