A plan agreed to in marathon negotiations earlier this month called for a one-time levy on all bank depositors in Cypriot banks. But the proposal ignited fierce anger among Cypriots because it also targeted small savers. It failed to win a single vote in the Cypriot Parliament.
Under the new agreement, average savers' deposits with all Cypriot banks of up to 100,000 euros will be guaranteed by the state in accordance with the EU's deposit insurance guarantee, the diplomat said.
In an illustration of the depth of the fear of a banking collapse, Cyprus' central bank on Sunday imposed a daily withdrawal limit of 100 euros ($130) from ATMs of the country's two largest banks to prevent a bank run by depositors worried about their savings.
Cypriot banks have been closed this past week while officials worked on a rescue plan, and they are not due to reopen until Tuesday. Cash has been available through ATMs, but long lines formed and many machines have quickly run out of cash.
The international creditors, led by the IMF, were seeking a fundamental restructuring of the outsized financial system, which is worth up to eight times the country's gross domestic product of about 18 billion euros. They say the country's business model of attracting foreign investors, among them many Russians, with low taxes and lax financial regulation has backfired and must be upended.
They also insisted that Cyprus couldn't receive more loans because that would make its debt burden unsustainably high.
After the eurozone's finance ministers' approval, the ECB is expected to continue providing liquidity to the Cypriot banks, avoiding an imminent collapse. Several national parliaments in eurozone countries such as Germany then must also approve the bailout deal, which might take another few weeks.