Russian bank depositors, with investments worth €20bn, are expected to be severely hit by the losses, described last week by Vladimir Putin, the Russian President, as "unprofessional and dangerous". "We did not speak to Putin tonight. We will have to speak to the Russians at some point," said Pierre Moscovici, the French finance minister.

Cyprus agrees €10bn bail-out deal with eurozone

Cyprus has agreed a last-ditch deal for a €10bn bail-out that will safeguard small savers, inflict heavy losses on uninsured depositors, including wealthy Russians, and keep the country in the eurozone.

By Bruno Waterfield, in Brussels TELEGRAPH

6:15AM GMT 25 Mar 2013

Popular Bank of Cyprus, also known as Laiki and the nation's second largest bank, will be shut as part of the deal, with the raid on uninsured Laiki depositors expected to raise €4.2bn.

The Bank of Cyprus, the island's largest lender, survives but investors not protected by the €100,000 deposit quarantee will suffer a major "haircut" – a forced loss on the value of their investment - over the coming weeks of up to 40pc.

Deposits above €100,000 in both banks, which are not guaranteed under EU law, will be frozen and used to resolve Laiki's debts and recapitalise Bank of Cyprus. The Bank of Cyprus must also assume over €9 bn in liabilities owed to the ECB by Laiki.

All deposits in Laiki Bank below €100,000 will be shifted to the Bank of Cyprus to create a "good bank". The rest will be placed in a "bad bank". The two banks account for around 50pc of deposits in the the banking system.

Officials said senior bondholders in Laiki would be wiped out and those in Bank of Cyprus would have to make a contribution.

The eurozone admitted early this morning that "no date is fixed" for banks to reopen in Cyprus and that they could remain closed after Tuesday, after a week of being closed.

Cyprus will today introduce unprecedented capital controls as the authorities scramble to prevent the collapse of the country's financial sector after the bailout deal.

President Nicos Anastasiades and heads of the European Union, the European Central Bank and the International Monetary Fund sealed the deal in the early hours of Monday and it was swiftly endorsed by eurozone finance ministers.

During emergency negotiations in Brussels last night, Mr Anastasiades threatened to pull his country out of the euro. He was warned that Cyprus faced disorderly default and exit from the EU single currency on Tuesday unless it bowed to the agreement - an agreement that will see almost half of the country's financial sector wiped out as part of the eurozone's strategy to restructure its economy by 2018.

Jeroen Dijsselbloem, head of the Eurogroup of finance ministers, of the Netherlands, said: "We've put an end to the uncertainty that affected Cyprus and the euro area over the last few days."

Even the best-protected senior bondholders investing in Laiki Bank would see their holdings "wiped out", Mr Dijsselbloem said.

"Laiki bank will have to be resolved so yes, senior bond holders, along with the others, will basically be wiped out there," he said.

He said the Bank of Cyprus, the island's largest bank, needs to be recapitalised. "The contribution to this recapitalisation must come, inevitably, from senior bondholders, junior bondholders, shareholders and, to some extent, we don't know to what extent yet, also from uninsured depositors," Mr Dijsselbloem said.

Christine Lagarde, head of the International Monetary Fund, said the deal provided "a comprehensive and credible plan to deal with the current economic challenges in the country".

Russian bank depositors, with investments worth €20bn, are expected to be severely hit by the losses, described last week by Vladimir Putin, the Russian President, as "unprofessional and dangerous".

"We did not speak to Putin tonight. We will have to speak to the Russians at some point," said Pierre Moscovici, the French finance minister.

The deal will not need the approval of the Cyprus parliament as the losses on large depositors will be achieved via a restructuring of Laiki and Bank of Cyprus and not a tax.

The Cypriot parliament has already voted through "generic" laws on bank resolution and capital controls, so no further vote will be needed to implement the new agreement.

Emergency legislation agreed at the weekend gives Cyprus the power to restrict all banking transactions, including cash withdrawals and the use of credit cards, alongside "any other measure necessary for reasons of public order and safety".

Last week a plan for a levy on all savings was rejected by the Cyprus parliament as "bank robbery" and provoked angry response from pensioners to Russian President Vladimir Putin.

The new deal, reached after a week of turmoil that threatened to plunge the eurozone back into crisis, was a "much better" outcome, Mr Dijsselbloem said.

The final bail-out will also involve a Cypriot government austerity programme, privatisations and tax changes at a time of deepening recession given job losses at banks and companies losing out on deposits.

European Union euro Commissioner Olli Rehn said new economic forecasts for Cyprus would need drawn up quickly to take account of the deal.

Mr Rehn said the Cypriot government would decide when to lift capital controls, which saw daily withdrawal limits at cash machines reduced to as little as €100 a day on Sunday.

The European Central Bank had threatened to halt life-support funding for Cyprus on Monday if there was no deal, but Mr Dijsselbloem said he expected that support now to continue.

This latest deal means Cyprus becomes the fifth eurozone country to win international aid for its banks, after Greece, Ireland, Portugal and Spain.

European shares rallied at the open on Monday, following Asian markets earlier. Germany Dax and France's CAC jumped 1pc and 1.4pc. In London the FTSE rose 0.6pc to 6431. Eurozone banks, which own a large part of the region's sovereign debt and depend on the wholesale funding market, gained.

The euro also enjoyed a bounce in Asian trading, as investors bought on the back of a deal they hope will draw a line under the crisis