All banks in Cyprus will remain closed until Thursday on orders from the country’s finance minister, the Central Bank of Cyprus announced late Monday.

Earlier Monday, the central bank had said all but the country’s two largest banks, Laiki and Bank of Cyprus, would reopen Tuesday after being closed for more than a week to avoid a run on deposits.

The earlier announcement had said Laiki and Bank of Cyprus would remain closed until Thursday, at which time an ATM withdrawal limit of 100 euros would also be lifted.

The banks were closed as Cyprus and its creditors engaged in last-minute talks to secure a bailout deal to avoid financial collapse. An agreement was reached early Monday morning local time.

"It's not that we won a battle, but we really have avoided a disastrous exit from the eurozone," Cypriot Finance Minister Michalis Sarris said in Brussels, where the negotiations took place.

In return for the $10 billion-euro bailout, Cyprus must cut its budget, drastically reduce the size of its banking sector and take a cut from wealthy depositors.

The deal came just before the European Union Central Bank was to make good on a threat to cut off emergency assistance to Cyprus' banks -- a move that would almost certainly have sent them into bankruptcy.

A failure of Cyprus' banks would have likely dragged down the nation's economy and threatened its membership in the EU.

German Chancellor Angela Merkel said Monday that the deal “that was found is right.” Merkel has said Cyprus’ banks must be part of the solution to the crisis after years of luring foreign investors with high interest rates.

"I think that a fair sharing of the burden was achieved," Merkel said. "On one hand, the banks have to take responsibility for themselves. That is what we have always said: we do not want taxpayers to have to rescue banks, we want banks to rescue themselves."

The bailout deal agreed to by the 17 eurozone finance ministers in Brussels is "painful," Cyprus’s President Nicos Anastasiades said Monday.

Anastasiades said the 10-hour negotiations “were difficult, at some moments dramatic. Cyprus found itself a breath away from economic collapse.”

But Anastasiades said the deal is “the best we could have ensured. The danger of Cyprus’ bankruptcy is definitively overcome and the tragic consequences for the economy and society are averted.”

In comments reported by The Associated Press, Parliament President Yiannakis Omirou said the deal is both difficult for Cypriots, and a blow to European solidarity.

"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," Omirou told AP.

"So as soon as possible we have to prepare our economy to go out from the mechanism and the troika," he said, referring to the bailout agreement with the three-member delegation from the European Commission, International Monetary Fund and European Central Bank.

Under the terms of Monday’s agreement, Cyprus' second-largest bank, Laiki, will be restructured and holders of bank deposits of more than 100,000 euros will be required to take losses.

While it is not clear yet how much large deposit holders stand to lose, chair of the euro zone finance minister's group Jeroen Dijsselbloem said the move is expected to generate 4.2 billion euros.

"We believe that this will form a lasting, durable and fully financed solution," International Monetary Fund Christine Lagarde said of the deal.

Large deposits above the insured level at the Bank of Cyprus will be frozen until the extent of losses is known, the “Eurogroup” of euro zone finance ministers said in a statement.

Fearing a potential collapse of its banking system, Cyprus last week imposed a daily withdrawal limit of 100 euros from the ATMs of two of its largest banks. The limit was to prevent account holders, worried about the future of their savings, from withdrawing all of their money.

Meanwhile, banks have been closed while politicians mulled ways to raise the 5.8 billion euros (US$7.5 billion) to qualify for the rescue. An alternative was needed after the country's lawmakers resoundingly defeated the initial plan, which would have seized up to 10 per cent of funds in people's accounts in all banks.

Under the new plan, most of the funds will be raised by forcing losses on savers in two of the country's banks, the remainder generated through tax increases and privatizations.

Ian Lee, an assistant business professor at Carleton University, said Merkel played a major role in the Cyprus deal. Germany, the strongest economy in the eurozone, has emerged as a powerful voice in Europe, helping broker bailout deals and financial support for struggling members.

However, there was little public support for a bailout of Cyprus, which is viewed as a financial playground for the rich that has served as a tax haven for many wealthy Russians.

As a result, Merkel pushed for Cyprus to take deep cuts in order to qualify for funding.

"The thought of bailing out Cyprus on top of the other bailouts and to bail out a country that was the playground of rich Russian oligarchs who were perceived to not play by the rules was just simply far too much," Lee told CTV's Canada AM.

"And that's why Chancellor Merkel....said ‘No, you, Cyprus, are going to do the bail-in, you Cyprus are going to pay the burden and we are going to wipe out many of the depositors over 100,000 pounds.’"

An earlier plan agreed to last week, which called for a one-time levy of all of the country's bank accounts, was scrapped after it failed to get a single vote in the Cypriot Parliament.

The idea resurfaced after an attempt to secure financial aid from Russia failed.

Under the new plan:

  • Laiki, the country's second-largest bank, will be restructured;
  • All Laiki bond-holders and people with more than 100,000 euros in their accounts will face significant losses;
  • The bank will be dissolved immediately into a bad bank containing its uninsured deposits and toxic assets,
  • Guaranteed deposits will be transferred to the nation's biggest lender, Bank of Cyprus;
  • Deposits at Bank of Cyprus above 100,000 euros will be frozen until it becomes clear if they will also be forced to take losses;
  • The money from those deposits will eventually be converted into bank shares.

As protesters demonstrated in the streets of Cyprus's capital, Nicosia, news agencies reported that a homemade bomb had exploded inside a Bank of Cyprus branch. Firefighters were able to quickly extinguish the flames, but the explosion caused some damage.

With files from The Associated Press