Breaking with previous practice that depositors' savings were inviolable, eurozone finance ministers announced over the weekend a one-off tax on Cypriot bank accounts would be imposed as part of a €10 billion bailout by the European Union.
The measure infuriated ordinary Cypriots, who staged noisy demonstrations in the capital, Nicosia.
A softer bill?
Cypriot and eurozone officials have since sought to soften the initially proposed levy of 6.75% on depositors of up to €100,000 and 9.9% above €100,000 in order to ease the burden on small savers and overcome lawmaker opposition.
But apparently the support for this bill was lost. The development comes after Cypriot President Nicos Anastasiades held talks with German Chancellor Angela Merkel and Russian President Vladimir Putin.
Putin called the proposed levy "unfair, unprofessional and dangerous", and Moscow has expressed frustration Russia was not included in European decision-making on Cyprus.
The Parliament in Cyprus has postponed its vote twice already in an effort to build consensus in a fractious body where no party has an absolute majority. Three parties have said outright they will not support the tax.
The initial proposal sent the euro and stock markets down and has infuriated ordinary Cypriots who say they are being forced to pay the price of the country's banking crisis.
Stunned islanders emptied cash machines over the weekend and banks are to remain shut through Wednesday to avoid a bank run. Hundreds of protestors rallied outside parliament on Monday, honking horns and holding banners saying "We are not your guinea pigs!"
"If they vote for this tax they will face the fury of the people," said Markos Economou, a 47-year-old physics teacher and father of two. "The banks and the politicians should pay for this mess, not the people."
Seeking to overcome divisions within the government's own ranks, ministers were scrambling to ease the pain for small savers by tilting more of the tax towards those with deposits greater than €100,000.
Eurozone finance ministers were in favour of imposing a 15.6% levy on deposits of above €100,000 to help recapitalise Cyprus' financial sector while sparing depositors up to that level, officials told Reuters.
The government maintains that Cyprus has no choice but to accept the bailout with the levy on deposits, or go bankrupt.
A one-off measure?
While Brussels has emphasised that the measure is a one-off for a country that accounts for just 0.2% of European output fears have grown that savers in other, larger European countries become nervous and start withdrawing funds.
"If you're a small depositor in Cyprus you'll tell yourself that it would have been better to keep your money under the carpet than in a bank," said a French bank executive who declined to be named.
"And if you're a Greek, a Spaniard or an Italian, well, you'll tell yourself that you might be next."