Bid to Remain in Euro Imposes Bank Controls, Steep Losses on Large Depositors.

Cyprus secured a bailout from its international creditors early Monday, ending a week of financial panic that threatened to see the small island nation become the first government to leave the euro zone.

But lasting damage has likely been inflicted on the Cypriot economy. Officials said they believe the country will now need strict controls on money transfers in and out of the economy.

And the bailout program aims to slash the size of Cypriot banks, perhaps forever ending the country’s status as an offshore tax haven and financial-services center.

Cyprus could see its economy contract by 10% or more in the years ahead, economists said.

The deal lines up €10 billion ($13 billion) in financing for the government and shuts Cyprus’s second-largest bank, Cyprus Popular Bank PCL, imposing steep losses on deposits with more than €100,000, European officials said. But with deposits of less than €100,000 now protected, the haircuts suffered by uninsured depositors will be very severe. Uninsured depositors in Laiki will be transferred to a bad bank whose assets will now be run off; they will be lucky to get any of their money back. Meanwhile, uninsured depositors in Bank of Cyprus will have their accounts frozen pending a review of the bank’s capital needs. Part of their deposits will be converted into equity amid speculation that losses could be as much as 40%.

But the deal doesn’t include any losses for smaller depositors or depositors in other Cypriot banks, a proposal that derailed an initial attempt to reach a pact last week.

The bank restructuring doesn’t need approval by the Cypriot Parliament.

Underlining the seriousness of the situation, the two biggest banks imposed limits on cash withdrawals from automated-teller machines on Sunday. Georgios Georgiou, the spokesman for Cyprus’s central bank, said the limit was €100 per day. However, at least one Bank of Cyprus ATM in Nicosia had a withdrawal limit of €120. ATMs of other banks in Cyprus dispensed cash normally, he said.