The Cypriot parliament, the EU and the IMF have agreed to a €10bn bailout after a tense week of negotiations. The deal will spare depositors from a controversial levy, but will force substantial losses for large-scale depositors in two of the country’s biggest lenders. The last minute aims at preventing a collapse of the island’s banking system and protecting Cyprus’ EU membership.

The deal, which does not require approval from the local parliament, involves the closure of Laiki Bank, the country’s second largest financial institution. It banks current €4.2bn worth of deposits over €100,000 will go into a ‘bad bank’ and could be lost entirely. Smaller deposits will be transferred to the Bank of Cyprus, the country’s largest, which will undergo a vigorous restructuring. Deposits over €100,000 in the Bank of Cyprus will be frozen and could also face losses after the bank has been restructures and recapitalised.

In an unprecedented move by the EU, both junior and senior bondholders will be wiped out. The Bank of Cyprus will also take on the €9bn Laiki owes to EU creditors that has been the bank’s lifeline over recent months. None of the €10bn bailout money will go to recapitalising the Bank of Cyprus and officials still face the task of determining how much of the large deposits will be required to ‘bail in’ the bank back to health, and EU mandated capital levels.

“I’m happy because we shall have a programme and it’s in the best interests of the Cyprus people and the European Union,” said President Nicos Anastasiades, though not everyone agrees with him. While the deal is far from the original, much reviled, proposal, it is still being criticised due to the perceived double-standard of the bailout. Critics have pointed that no other rescued EU member has had to impose losses on its depositors and there are worries that the bailout will set out a dangerous precedent.

“It is clear the depth of the financial crisis in Cyprus means the near future will be very difficult for the country and its people,” said Olli Rehn, economic chief at the European Commission. Banks in Cyprus remain closed, in an attempt to prevent a flight of capital and a limit on withdrawals of €100 from the country’s cash machines remains in place.

The deal was approved hastily in the early hours, as the EC had threatened to suspend the funds holding the banks together if a deal was not reached by Monday. One of the conditions of the deal is that Cyprus tackle its overinflated banking system, which has grown to seven times the size of the island’s GDP.

Last week a controversial deal had been suggested by the EU and the IMF that would see all depositors in Cyprus’ banks face a forced haircut in order to raise €5.8bn to supplement the bailout, but the deal did not make it through the local parliament. “The numbers have not changed. If anything they’ve got worse,” said Wolfgang Schäuble, Germany’s finance minister who is leading the talks in Nicosia. “It is well known that I won’t allow myself to be blackmailed by no one or nothing I’m aware of my responsibility for the stability of the euro. If we take the wrong decisions we’ll be doing the euro a great disservice.”