The 17 euro zone finance ministers gave their approval to an EU-IMF plan for restructuring Cyprus's banking sector on Monday (March 25th), putting their stamp on a proposal that will fundamentally overhaul the country's two largest banks.

The plan emerged after fraught negotiations earlier on Sunday between Cypriot President Nicos Anastasiades and heads of the European Union, the European Central Bank and the International Monetary Fund - hours before a deadline to avert a collapse of the banking system.

The plan will save the Mediterranean island from financial meltdown by winding down Popular Bank of Cyprus and shifting deposits below 100,000 euros to the Bank of Cyprus to create a "good bank".

Deposits above 100,000 euros, which under EU law are not guaranteed, would be frozen and used to resolve debts, and Popular Bank would effectively be shuttered.

A first attempt at a deal collapsed last week when the Cypriot parliament rejected a proposed levy on all deposits. EU diplomats said the president, flown to Brussels in a private jet chartered by the European Commission, had fought to preserve the country's business model as an offshore financial centre drawing huge sums from wealthy Russians and Britons.

The key issues in the dispute were how Cyprus would raise 5.8 billion euros from its banking sector towards its own financial rescue, and how to restructure the outsized banks.

The EU and IMF required that Cyprus raise 5.8 billion euros from its banking sector towards its own financial rescue in return for 10 billion euros in international loans. The head of the EU rescue fund said Cyprus should receive the first emergency funds in May.

With banks closed for the last week, the Central Bank of Cyprus imposed a 100-euros per day limit on withdrawals from cash machines at the two biggest banks to avert a run.

Analysts had said failure to clinch a deal could cause a financial market selloff, but some said the island's small size - it accounts for just 0.2 percent of the euro zone's economic output - meant contagion would be limited.

The abandoned plan for a levy on bank deposits had unsettled investors since it represented an unprecedented step in Europe's handling of a debt crisis that has spread from Greece, to Ireland, Portugal, Spain and Italy.

Presented by Adam Justice