Savings accounts in Spain, Italy and other European countries will be raided if needed to preserve Europe's single currency by propping up failing banks, a senior eurozone official has announced.
The new policy will alarm hundreds of thousands of British expatriates who live and have transferred their savings, proceeds from house sales and other assets to eurozone bank accounts in countries such as France, Spain and Italy.
The euro fell on global markets after Jeroen Dijsselbloem, the Dutch chairman of the eurozone, announced that the heavy losses inflicted on depositors in Cyprus would be the template for future banking crises across Europe.
"If there is a risk in a bank, our first question should be 'Okay, what are you in the bank going to do about that? What can you do to recapitalise yourself?'," he told Reuters and the Financial Times.
"If the bank can't do it, then we'll talk to the shareholders and the bondholders, we'll ask them to contribute in recapitalising the bank, and if necessary the uninsured deposit holders."
The new policy will alarm hundreds of thousands of British expatriates who live and have transferred their savings, proceeds from house sales and other assets to eurozone bank accounts in countries such as France, Spain and Italy.
The euro fell on global markets after Jeroen Dijsselbloem, the Dutch chairman of the eurozone, announced that the heavy losses inflicted on depositors in Cyprus would be the template for future banking crises across Europe.
"If there is a risk in a bank, our first question should be 'Okay, what are you in the bank going to do about that? What can you do to recapitalise yourself?'," he told Reuters and the Financial Times.
"If the bank can't do it, then we'll talk to the shareholders and the bondholders, we'll ask them to contribute in recapitalising the bank, and if necessary the uninsured deposit holders."
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BUSINESS
25 March 2013 Last updated at 18:08
Cyprus bailout: Dijsselbloem remarks alarm markets
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European and US stock markets have fallen despite the agreement of a bailout deal for Cyprus.
The falls came after the head of the Eurogroup of eurozone finance ministers suggested that the Cyprus model, which involves a tax on bank deposits, could form a template in any future bailout.
Earlier, hopes that the Cyprus deal would solve the crisis lifted shares.
By 15:30 GMT, all major European markets had fallen into negative territory, joined by US stocks.
Markets in Europe and the US moved downwards when Jeroen Dijsselbloem, the Dutch Finance Minister who as head of the Eurogroup played a key role in the Cyprus negotiations, said the deal represented a new template for resolving future eurozone banking problems.
He also said other countries may have to restructure their banks.
His remarks raised fears that other European countries with struggling banks may face the same solution as Cyprus, which agreed to force those with cash on deposit above 100,000 euros (£85,000), many of whom are Russian, to pay a substantial tax.
Cyprus will receive 10bn euros ($13bn; £8.5bn) in bailout funds, but has agreed to a major restructuring of its banks.
Small savers will be protected but Cyprus's second largest bank - Laiki Bank - will be wound up and split into "good" and "bad" banks, with its good assets eventually merged into the Bank of Cyprus, the country's biggest bank.
The two banks will remain closed until Thursday, while all others will reopen on Tuesday after being closed for more than a week, Cyprus's central bank says.
The Cypriot government suggested that account holders with deposits of more than 100,000 euros should expect to lose about 30% of their balances.
The UK's FTSE 100 index ended the day down 0.2%, while Germany's Dax gave up 0.5%, and France's Cac lost 1.1%. In New York, the Dow Jones was 0.5% lower.
In Madrid, the market slipped 2.5% while the Milan index was down 2.27%.
The euro was also driven lower, falling to a six-week low against the pound. The euro was down 0.6% to 84.74 pence.
Significant obstacles
The new deal for Cyprus, unlike previous agreements, does not require the approval of the Cypriot parliament.
The uncertainty over the future of Cyprus in the eurozone was sparked a week ago when its parliament rejected an earlier bailout deal, which also included a controversial bank levy.
Despite the Cypriot economy's relatively small size, many analysts had been concerned that the crisis would spread to the wider eurozone, had Cyprus been forced to give up the single currency.
There were fears that the country's possible exit from the euro would trigger a loss of confidence across the single currency bloc, and prompt investors to withdraw from other troubled economies, such as Greece.
However, while Cyprus is now likely to remain in the eurozone, the country still faces significant obstacles as it attempts to recover from the crisis.
The EU-IMF deal involves a massive restructuring of the Cypriot banking system, as well as austerity measures and tax increases.
There has also been significant public anger in Cyprus at the intervention of European authorities, and the credibility of the Cypriot government has been questioned.
"We see a risk that Cyprus' sovereign debt burden post-bailout might not be sustainable, as the country is likely to enter a deep recession caused by the shrinkage of the banking sector and severe deleveraging," warned Reinhard Cluse, an economist at UBS.
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