Amid concerns of a possible bank run, Cyprus is requiring banks to stay closed until Thursday. The Cypriot authorities will also limit access to bank accounts and movement of cash out of the island.
It is the first time capital controls are being applied within the euro area and comes after Cyprus sealed a deal with the EU and the IMF on Monday to avoid bankruptcy and a potential euro exit.
'The Eurogroup yesterday reached an agreement on a programme for the Republic of Cyprus that, if properly implemented, we believe will restore the viability of the Cypriot economy. The European Commission has worked intensively to make this deal possible. We had to find a solution together for a business model that was not viable and could not offer lasting prosperity to the people of Cyprus', said European Commission's President Jose Manuel Barroso.
International lenders required that Cyprus raise €5.8 billion from its banking sector towards its own financial rescue in return for a €10 billion bailout.
The Cypriot authorities agreed to impose a big levy on deposits above 100.000 euros though smaller deposits will be protected.
Cyprus' second largest bank will also be shut down, with thousands of job losses.
'It was time to move from this model which is based on finance. We need to supervisory rules, rules on resolution, and also on capitalisation. And personally, I was very keen of this, I also said this that we need to protect savers with deposit of less that 100 000 Euros if we want the savers to be confident not just in Cyprus but if we want to invest on EU economy, we have to respect the letters and the spirit of the EU directive on bank deposit. On this point, I want to state very clearly that never anywhere in Europe, this protection of savings of under 100 000 Euros is something that will be put into question', said EU's commissioner for Internal Market and Services Michel Barnier.
The EU executive announced on Monday the creation of a task force based in Brussels to provide technical assistance to the island.
While Brussels said that they will do anything to prevent people from feeling the consequences of the bailout, austerity measures and tax increases are expected.
'We agreed on a 10 Billion Euro package worth 55% of the GDP of Cyprus. And we need to look at how we can mobilise all the means at our disposal. That is why I have decided to set up a Task Force for Cyprus to provide technical assistance to the Cypriot authorities', said European Commission's President Jose Manuel Barroso.
'The Commission will do everything possible to alleviate social consequences of this economic shock and help to protect the most vulnerable people. Cyprus is part of the European Family and Europe will stand by the Cypriot people', said EU commissioner for Economic and Monetary Affairs Olli Rehn.
This is Cyprus' worst crisis since the 1974 invasion by Turkish forces, which split the island in two.
The head of the EU rescue fund said Cyprus should receive the first emergency funds in May.
