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The eurozone told Cyprus on Monday to ditch the part of a hugely controversial 5.8-billion-euro grab on savings that stung even the smallest of account holders in exchange for a 10-billion-euro sovereign bailout deal, according to a statement issued after a conference call.
Finance ministers "continue to be of the view that small depositors should be treated differently from large depositors and reaffirms the importance of fully guaranteeing deposits below 100,000" euros ($130,000), Eurogroup President Jeroen Dijsselbloem of The Netherlands said in the release.
A eurozone source spelled out when pressed by AFP that this meant preferably removing altogether the 6.75-percent levy applied to these accounts, which combined amount to more than three fifths of all Cypriot savings despite some 30 billion attributed to large Russian investors.
The economic and political fallout was huge following the 5:00 am announcement on Saturday that a raid on savings would be required alongside international loans to the Cyprus government in the fifth eurozone bailout of the three-year debt crisis.
Cyprus shut its banks through until Thursday at least and delayed a parliamentary vote on the package until Tuesday after large queues formed at ATMs on the island, while Russian President Vladimir Putin pounded a "dangerous" move and turmoil hit stock and currency trades amid concerns a precedent had been set for bigger debt-saddled eurozone economies like Italy and Spain.
The hastily-convened ministerial talks saw Dijsselbloem "reiterate that the stability levy on deposits is a one-off measure" which, he said, would "restore the viability of the Cypriot banking system" when applied in tandem with eurozone and International Monetary Fund loans.
"In the absence of this measure, Cyprus would have faced scenarios that would have left deposit holders significantly worse off," the Dutchman insisted.
Newly-installed as chairman just months into his appointment in The Hague, Dijsselbloem faced implied criticism earlier in the day from veteran predecessor and Luxembourg Prime Minister Jean-Claude Juncker, with analysts suggesting the European Union had shot itself in the foot with the decision and media lampooning a "the Great Euro Bank Robbery".
But the statement said that emergency re-negotiations would see Nicosia "introduce more progressivity in the one-off levy", in other words increasing the tax rate on bigger holdings to ensure the same 5.8-billion return.
Cyprus Finance Minister Michalis Sarris is due in Moscow on Wednesday for what looked certain to be awkward talks -- a day before the head of the European Commission, a member of the bailout 'troika,' also lands in Moscow to meet Prime Minister Dmitry Medvedev.
The statement said Cyprus should use the "temporary bank holiday" to effect "a swift decision by the Cypriot authorities and parliament to rapidly implement the agreed measures".