Questions and answers on the Cyprus EU bailout

(NICOSIA) - How did it come to this?

Cyprus says it is a victim of EU solidarity because it participated in a haircut on toxic Greek debt it could ill afford -- and its banks lost a staggering 4.5 billion euros.

The banks then struggled to meet tougher EU criteria for boosting their capital and asked for government assistance. But the state -- excluded from international markets -- had no money and in June requested an EU bailout.

The EU said it could not afford to save Cyprus without Cypriots and foreigners also making a contribution.

What does it mean for the man in the street?

Everyone with a bank account will receive a "haircut," no matter how many separate accounts. Those with under 100,000 euros will get a 6.75 percent haircut and anything above will get 9.9 percent.

Basically people who saved for a rainy day -- most Cypriots put money away for their children's education -- are being penalised for the euro crisis.

The measure also affects tens of thousands of British and Russian expats living and working on the island.

I thought Cyprus was a safe place to put money and retire?

It is and should be again. This is the first time bank accounts have been targeted to fund a bailout. Cyprus still has a lot going for it, but the feeling is if it can survive this jolt it will not take long to put the economy back on track.

But it will be tough trying to attract foreign investment after hiking Europe's lowest corporate tax rate from 10 percent to 12.5 percent combined with the unprecedented bank levy.

Is the levy only on deposit accounts or will my current account be tapped?

It seems that anyone who has any money in the bank is liable to be taxed. There is no hiding place.

What is the next step?

For the levy to be enforced, parliament must pass a new law. It meets on Monday but opposition parties are against such a move. It is also possible banks may not reopen on Tuesday over fears of a run by depositors.

Despite the shock, Cyprus is not a hotbed of civil unrest, and violent political or social protests are rare, unlike in Greece. There will certainly be angry scenes, but the authorities are urging everyone to look at the big picture.

Does the government have any other option?

The government says it was put in a "lose-lose" situation and told to "take it or leave it." If it had not accepted a raid on deposits, emergency funding to one of the island's largest banks would have ceased.

This bank would have closed, while another would have been tottering on the brink. The government argues that rejecting a deal would have led to a total collapse of the economy and exiting the euro, with bank accounts devalued by a minimum 40 percent as the country went back to the Cyprus pound.

Could Brussels come knocking at depositors' doors again?

The whole point of this bitter pill was that Cyprus could avoid any more bailout conditions or harsher austerity measures. Public opinion is in no mood to contemplate a second bailout -- it already feels hard done by.