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A European Central Bank (ECB) official said the Cypriot authorities had already started to take action to ensure that the levy can be collected. Otherwise, there would be a likelihood of massive withdrawals to avoid it, our correspondent adds.

There has also been speculation that Russia could help finance the bailout by extending a 2.5bn-euro loan already made to Cyprus. Cypriot Finance Minister Michael Sarris will travel to Moscow for meetings on Monday, reports say.

There are a lot of Russian deposits in the Cypriot banking system, according to economists.

Jacob Funk Kirkegaard, of the US-based Peterson Institute for International Economics, said that was a potential problem for any bailout negotiations.

"There is a general political sentiment that it is not acceptable to be bailing out a country, and thereby putting European taxpayers' money at risk, to basically protect Russian depositors in Cypriot banks," he said.

The Cypriot economy accounts for barely 0.2% of the eurozone's overall output. But there is concern within the euro bloc that a default by Cyprus risks undermining the progress being made in Greece.

Cyprus is the fifth country to receive eurozone assistance since the bloc's financial crisis began to unfold in earnest nearly three years ago.


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