The Cypriot government has failed to gain parliamentary support for its bank levy raid, needed if the country is to avoid financial disaster.
MPs have overwhelmingly rejected a critical draft Bill that would have seized part of people’s bank deposits in order for Cyprus to qualify for a vital international bailout.
The Bill, which had been amended to shield small deposit holders from the tax, received no votes, with 36 votes against and 19 abstentions.
Protesters outside the parliament in Nicosia celebrated and sang the national anthem after hearing the news.
Cyprus must now come up with an alternative plan to raise the money and a number of emergency meetings will take place on Wednesday.
If no resolution is found, the country will not qualify for external rescue loans, banks may collapse and the island faces bankruptcy.