The controversial bailout proposal that includes a tax levied on bank deposits has become the focus of investors in Europe and the United States, sending stocks lower.
To secure the deal, Cyprus has agreed to raise $5.8 billion from bank depositors, in part because banks in Cyprus are allegedly tainted with large deposits from Russian criminals.
It is the first time a European Union bailout has included levying a tax on bank accounts, which has made it difficult for Cyprus President Nicos Anastasiades to round up support for the bill among the country's 56 members of Parliament, The New York Times reported.
"This morning the news is all about Cyprus, the home to 'dirty money' with an estimated $18 billion of Russian and other mafia money on deposit," Jeffrey Saut, chief investment strategist at Jeffrey James & Associates said in a note to clients, MarketWatch reported.
The president is attempting to rally support for the bailout with a new breakdown on the bank deposit tax that would penalize larger accounts and take some of the burden away from smaller accounts.
The latest proposal includes a tax of 3 percent on deposits of $129,633 or less, a tax of 10 percent on accounts between $129,633 and $648,165, and a tax of 15 percent on accounts larger than that, the Journal said.
The original plan proposed by the European Commission and the International Monetary Fund called for a two-tiered tax with the smaller accounts accessed a tax at 6.75 percent.
The government had already ordered banks to access the tax before handing out any cash and banks were closed Monday due to a business holiday in Cyprus. But banks may be closed through Friday to keep depositors from pulling out of Cyprus en mass, which would put a severe strain on the banking system.
The original proposal called for a tax of 9.9 percent for deposits of more than 100,000 euros -- $129,633.
A euro was worth about $1.29 early Monday, but the euro was falling sharply in value against major currencies in Asian trading and was expected to fall as well in European trading.
A vote on the proposal in Cyprus has already been delayed once. The emergency vote was originally planned for Sunday but was postponed after new Cypriot President Nicos Anastasiades appealed to Parliament to delay it a day.
It was clear late Sunday most Cypriot lawmakers would not approve the bailout terms, The New York Times reported at the time.
This would lead to a probable loss of the rescue money that Cyprus needs.
Anastasiades said in a somber address to the nation that if Parliament did not approve the strict bailout terms, there would be a "complete collapse of the banking sector," major losses for depositors and businesses, and a possible exit of Cyprus from the eurozone.
The eurozone is 17 European Union member states that use the euro as their currency.
"I understand fully the shock of this painful decision," he said, standing between the Cypriot and European Union flags in the presidential palace.
"That is why I continue to fight so that the decisions of the Eurogroup will be modified in the coming hours." The Eurogroup is made up of the 17 eurozone finance ministers.
The deal, softened or not, would mark the first time depositors would take a loss in a eurozone rescue.
Until now, the EU practice was to finance eurozone bailouts largely by European taxpayers. But now, leaders of wealthy European nations, led by German Chancellor Angela Merkel, who faces an election this year, decreed that when a bank or country goes broke, bond investors and even bank depositors will have to pay a meaningful part of the bill.
Stunned Cypriots rushed to ATMs this past weekend to remove their savings, amid investor fears savers in Spain and particularly in Italy -- where cash-poor banks have been hit hard by loan losses -- would do the same, the Times said.
Spanish and Italian officials told bank customers Cyprus' situation was unique and deposits in their countries was safe.
There were no immediate reports of bank runs on those countries.
But investors feared the sudden turmoil would spread across the eurozone, challenging European Central Bank President Mario Draghi to make good on his January 2012 promise to do "whatever it takes" to protect the euro and save the eurozone, the Times said.