European markets tumbled on Monday after the leading eurozone finance minister suggested the Cyprus deal that saw bank accounts of individual depositors raided to save the island's banks could be repeated across the continent.
Under an agreement reached in the early hours of Monday morning, people who have more than 100,000 euros in Cypriot banks will have to contribute directly to the £10bn euro rescue package.
Speaking to Reuters, Dutch finance minister Jeroen Dijsselbloem said the approach could form the basis of a new model for stopping the collapse of European banks, rather than asking taxpayer to bail them out.
"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?'.
"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," he said.
Dijsselbloem, who heads the Eurogroup of eurozone finance ministers, added: "If we want to have a healthy, sound financial sector, the only way is to say, 'Look, there where you take on the risks, you must deal with them, and if you can't deal with them, then you shouldn't have taken them on'.
"The consequences may be that it's the end of story, and that is an approach that I think, now that we are out of the heat of the crisis, we should take."
The possibility that depositors will be forced to stump up their own cash to help save the banks has led to suggestions people will simply stop holding more than 100,000 euros in eurozone banks - money below that threshold is protected.
By the end of the day, The UK FTSE 100 had closed down 0.2%, the Dax in Germany lost 0.5% while France's Cac dropped 1.1%. later in New York, the Dow Jones closed 0.5% lower.
The euro fell to a six-week low against the pound ending the day down 0.6% at 84.74 pence.
Later, in a televised address, Cyprus' president Nicos Anastasiades said: "The agreement that we reached is difficult but, under the circumstances, the best that we could achieve," adding that the country's central bank would impose capital controls on bank transactions to prevent a run on deposits by savers fearful of their money's safety.
Mr Anastasiades told Cypriots that the bank's control would be a "very temporary measure".
A former Cyprus central bank governor said the effects of the crisis and bailout could last up to a decade.
"Cyprus has suffered a big hit and our standard of living will spiral downward, although the economy maybe able to recover in two to three years our standard of living will take at least 10 years to return," Afxentis Afxentiou told state radio, AFP reported.
Banks are expected to open on Tuesday at 8.30am, 10 days after they were closed sending panic through the country.
AP reported that the mood in the cypriot capital, Nicosia, was sombre.
"This decision is painful for the Cypriot people. This decision was a defeat of solidarity, of social cohesion, which are fundamental freedoms, fundamental principles of the European Union," Parliament president Yiannakis Omirou said.Suggest a correction