Europe scrambles to head off Cyprus crisis

European leaders were scrambling on Monday to amend a planned tax on bank deposits in Cyprus after the prospect panicked markets and prompted a Russian threat to withdraw financial aid.

Finance ministers from the 17 single currency states held an emergency conference call to thrash out a new deal amid fears that investors across the eurozone would be spooked into pulling funds from their accounts.

Despite forming barely 0.2% of Europe's economy, the Mediterranean island has found itself at the centre of political and economic storm. The United States stepped into the row, with the White House calling for a "responsible and fair" rescue plan.

Cyprus has been surprised by the hostility that has greeted its decision to accept European demands to raise euros 5.8?billion (pounds 5.04 billion) from a one-off tax of up to 9.9% on bank deposits, as a contribution towards a 17 billion euros bail-out needed to save its banks.

Vladimir Putin, the Russian president, called the proposed levy "unfair, unprofessional and dangerous" and his finance minister suggested that Moscow could withdraw a 2.3 billion euros loan made to Cyprus in 2011.

The bank levy was partly intended by Brussels and Berlin to prevent EU taxpayers spending billions on propping up the ill-gotten gains of Russia's super-rich in Cypriot accounts.

Russian deposits in Cyprus, which offers attractive interest rates and asks few questions, are estimated at 20 billion euros, meaning Russian corporate and individual investors could lose up to 2 billion euros in one fell swoop.

Anton Siluanov, the Russian finance minister, said: "We had an agreement with colleagues from the eurozone that we'd coordinate our actions [on Cyprus]. So, we will consider the issue of restructuring of the loan taking into account our participation in the coordinated actions with the European Union to help Cyprus."

There was continued uncertainty for the estimated 60,000 Britons who live on Cyprus, many of them pensioners living off their savings. The Foreign Office advised British tourists visiting the island to ensure they had access to a variety of payment options.

All banks in Cyprus were closed yesterday for a public holiday, but the government in Nicosia ordered them to remain shut until Thursday, amid fears of a potentially crippling run on the banks to withdraw savings.

Cash machines have been switched off and money transfers blocked since Sunday after many account holders took out all they could.

A vote in the Cypriot parliament to ratify the plan was postponed for a second time until tonight after it became clear that the government would struggle to force it through.

Protesters in Cyprus broke a national religious holiday to gather outside the parliament building. "Merkel, you stole our savings accounts", read a banner attached to a bus shelter, referring to the German chancellor.

Many expressed regret at Cyprus's decision to join the EU and euro in 2004. "They advertised that Europe was for its citizens, well I don't feel like a citizen," said Marina Maleni, 46, an administrator in the Cyprus State Theatre and part of a group holding aloft a banner reading, "Europe For Its People: Not For Germany".

She added: "Europe is cheating and stealing from its citizens right now. It is also picking on some countries and eating them up so the rest can enjoy."

She said that even her 12-year-old daughter, who had a savings account containing euros 2,000 in gifts she had received since a baby, would have to pay out "so some bankers can run off and take the money".

Prodromoulla Apostolides, 53, the owner of a home decorating business, said: "Do you know any other country in the EU that they have given such bad terms to?

"The only reason we went in is because we thought they would solve the problem with the Turkish Cypriots. But that is still unsolved, so why stay in?"

Under the current plan, depositors with less than euros 100,000 in Cyprus accounts would have to pay a one-time tax of 6.75% despite that sum being insured by law. Those with sums over that threshold would pay 9.9%.

Nicos Anastasiades, the president of Cyprus, was proposing a new formula that would put more of the burden on rich, uninsured depositors and prevent a full-scale run on the banks. The latest proposal was that bank deposits of less than 20,000 euros would be exempt from the levy.

German and European officials began distancing themselves from the levy, despite having insisted on it at a late-night meeting in Brussels that went into the early hours of Saturday.

Wolfgang Schaeuble, Germany's finance minister, said it was "not the creation" of the German government and that he was open to changes.

Joerg Asmussen, a members of the European Central Bank's board, said: "I want to emphasise that it wasn't the ECB that pushed for this special structure of the contribution which has now been chosen. It was the result of negotiations in Brussels."