

NICOSIA, Cyprus—Cypriots expressed mixed feelings of anger and uncertainty on Monday after their country struck a bailout deal with its euro-zone partners that will significantly curtail banking operations, spelling job losses and a weak economy for years to come.

Cyprus's commercial banks will remain closed until Thursday, the country's central bank said late Monday, reversing an earlier decision to allow some banks to reopen Tuesday after a 10-day closure.

With strict curbs to money flows set to take effect as soon as banks reopen, businesses complained that they were unsure whether they would be able to pay salaries, and bank unions were threatening strike action, potentially prolonging the devastating closure.

Cyprus President Nicos Anastasiades described the limit on bank transactions as a "very temporary measure, which will gradually be relaxed," but concerns that Cyprus's bailout plan could be replicated in other countries with fragile banking industries also turned initial relief in the markets into a selloff late Monday.

After days of negotiation, Euro-zone finance ministers have agreed terms for a bailout deal, which aims to prevent the collapse of Cypriot banks. Above, people wait Monday to use an ATM at the Bank of Cyprus in Nicosia. Getty Images

The new debt deal may only be only the start for Cyprus, according to Heard on the Street's Simon Nixon. He explains that the bailout is a move in the right direction but leaves the country exposed to a prolonged recession. Photo: AP

European stocks declined sharply, with financially stressed euro-zone countries' benchmark indexes and their associated banks taking the biggest hits after Eurogroup head Jeroen Dijsselbloem appeared to make a U-turn on his previous stance on the bailout, saying the losses suffered by uninsured depositors as part of Cyprus's bailout deal may have to be repeated elsewhere.

"If there is a risk in a bank, our first question should be 'OK, what are you in the bank going to do about that? What can you do to recapitalize yourself?' If the bank can't do it, then we'll talk to the shareholders and the bondholders, we'll ask them to contribute in recapitalizing the bank, and if necessary the uninsured deposit-holders," Mr. Dijsselbloem said.

In currency markets, the euro fell below its 200-day moving average, dropping to as low as $1.2863 from $1.2989 late Friday, having fetched as much as $1.3050 in Asian trade on initial relief over the bailout.

Cyprus secured a bailout from its international creditors early Monday, ending a week of financial panic that had threatened to make the island nation's government the first to leave the euro zone. The bailout program aims to slash the size of Cypriot banks—with the country's second-largest lender set for bankruptcy and its largest lender to be aggressively restructured—perhaps ending the country's status as an offshore tax haven and financial-services center.

The government had fought to avert this prospect, initially caving in and later rejecting a one-time levy on all bank deposits in its effort to keep the banks intact. But international creditors—the European Union, the European Central Bank and the International Monetary Fund—insisted that reducing the size of the country's disproportionately large banking sector was the only way back to economic sustainability.

Border guards at Cyprus's crossing with the Turkish-controlled north aren't searching people to see if they're taking large sums of currency from the country. But at air and seaports, officials are confiscating amounts over €10,000 ($13,000), says WSJ's Joe Parkinson. via #WorldStream

"This is not the Europe that we believed and entered with the hope that there will be some help. The amount of money Cyprus needed was just crumbs compared to the big budget of greater Europe and Cyprus should not have been entitled to such behavior," the island's influential Archbishop Chrysostomos said after a parade in Nicosia in celebration of neighboring Greece's Independence Day.

Economists warn that Cyprus now is likely to enter the same downward spiral that caused other bailed-out economies, such as Greece and Portugal, to shrink dramatically, while strict controls on money transfers in and out of the country could further strangle economic activity. 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. The country's largest bank, Bank of Cyprus PCL, will be downsized, with large depositors there taking a hit.

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 country also looks now set to secure Russia's nod for the restructuring of a €2.5 billion Russian loan it received earlier. Russian Finance Minister Anton Siluanov said talks on extending the maturity of the loan, which falls due in 2016, and lowering interest could resume soon.

People queuing up Monday at banks to withdraw cash—which the Cypriot government Sunday night capped at around €100 ($130) for most banks—were openly unhappy with the deal.

"This is collective punishment. It will destroy our economy," said Michaela Colounis, a teacher from Nicosia, as she withdrew the maximum daily limit from a Bank of Cyprus ATM with two different debit cards. "We've seen what happened in Greece and maybe now we're facing the same?"

With stores and businesses closed for a public holiday, the streets of downtown Nicosia were mostly calm on Monday. Unions had earlier warned they planned to call for a string of demonstrations and strikes to protest the details of the new bailout deal, though there were no plans for protests Monday. Some schoolchildren were set to protest on Tuesday morning instead of going to class.

In downtown Nicosia, thousands of Cypriots watched children and veterans marching accompanied by a band in the annual celebration of Greek independence. "This is supposed to be a happy day, but we're angry," said Michaelis Angelous, a 26-year-old bank worker. "We're not sure whether we'll have jobs tomorrow."

Cyprus has severely restricted the free flow of money to and from the island in recent days as it fought to avert a financial panic. Banks have been shut all week and will begin reopening Thursday, but restrictions will remain in place after the Cypriot parliament passed a bill Friday introducing temporary capital controls.

It still isn't clear how long the measures will be in place, with estimates ranging from a few weeks to possibly months. Michel Barnier, European Commissioner for the internal market and services, said Monday that the measures should be in place only for a few days.

"We are now working with the Cypriot authorities.…This is a limit on movement which may only last for a few days," he said.

In addition to limits on ATM withdrawals, the measures allow authorities to restrict noncash transactions, freeze check cashing, limit withdrawals from bank accounts and even convert checking accounts into fixed-term deposits.

Customs officials said people leaving Cyprus would be searched at airports and seaports to see whether they were trying to take more than €10,000 out of the country. Any amount over that limit would be confiscated by the government, the officials said.

But some officials said they were unsure how strictly they should enforce the measures. At the so-called Green Line dividing Cyprus from Turkish-administered Northern Cyprus, customs officials said they weren't searching people walking across the border unless they had information they were carrying large sums of currency. "We can't search everyone at the moment but we're waiting for new orders. Everything's changing," said Chrystos Chrystodoulou, a police officer guarding the border.

Business owners were struggling to understand what the bailout agreement would mean for them. Michalis Pilikos, president of national business association OEB said he was waiting to be briefed by Finance Minister Michalis Sarris on the immediate fallout from the deal.

"In two, three days we need to pay our employees. Will we be able to do that? What happens with the workers who get paid via Laiki [Cyprus Popular Bank]?" Mr. Pilikos said in a phone interview. Beyond the immediate problems firms here will face because of a limit on transactions and a freeze of banking activity, Mr. Pilikos said he feared many of his organization's members wouldn't survive the blow delivered by the closure of Cyprus Popular Bank and the hefty haircut imposed on deposits in Bank of Cyprus.

"For many this will be a major wound, we'll see immediate mass layoffs and closures," he said.

Employees at the Western Union money-transfer store close to Nicosia's shopping hub said they had seen a sharp rise in the number of foreign workers trying to send their euro-denominated savings out of the country. "Armenians, Bulgarians, Bangladeshis have been lining up outside the store to send money home. We've never seen anything like it before," said one employee.

Many Cypriots said the economic crisis had recalled memories of 1974, when the Turkish military invaded the island after a military coup backed by Athens.

Michaelis Pilidis, who owns a household-appliances business in Nicosia, was a refugee from that conflict. He said he wasn't sure whether his savings had been lost, and angrily called for politicians to be held to account.

"In 1974 the traitors were put in prison—but who is going to put the people in prison for this problem? They need to be punished," he said.

Write to Joe Parkinson at, Matina Stevis at and Nektaria Stamouli at