The 17-member Euro group, the International Monetary Fund, and Cyprus reached an agreement in Brussels in the early hours of Monday to prevent the Mediterranean island from bankruptcy.
"I am pleased to announce that the Euro group has reached a new political agreement with the Cypriot authorities on the key elements of an adjustment programme," Euro Group President Jeroen Dijsellbloem told a press conference.
The Euro group said it will provide financial assistance for an amount of up to 10 billion euro to Cyprus, he noted.
Under the deal, Cyprus' second-largest bank, Laiki (popular), will be resolved immediately. Laiki will be split into a good bank and a bad bank. The bad bank will be run down over time. The good bank will be folded into Bank of Cyprus, noted a Euro group statement.
All deposits below 100.000 euros in Cypriot banks will be safeguarded in accordance with EU principles, it said.
However, the bank levy percentage on deposits of more than 100,000 in the Bank of Cyprus will be decided in the coming weeks, Dijsselbloem said.
On his part, Cypriot Finance Minister Michalis Sarris told journalists after the Euro group meeting, "we did not win a battle but we avoided a disastrous exit from the euro zone." "There is no denial that Cypriot people will go through tough times as a result of mistakes at the banking level and fiscal excesses," added Sarris.