LOS ANGELES, CA (Catholic Online) - The bloc struck a deal this past weekend to hand Cyprus rescue loans worth $13 billion in U.S. dollars. The decision defied numerous warnings, including those from the European Central Bank and imposed a levy against those with savings in the bank. Those who put a little away in Cyprus now stand to lose between 6.75 and 9.9 percent of their money.

The parliament here put off a vote on the measure until later this week. There is widespread public anger in Cyprus and the government has assured the citizenry it was already looking to ease the pain for small savers.

Cyprus would be unable to avoid a default barring the bailout, undermining the promise that Greece's debt write-down last year was a one-off. The unprecedented move to hit depositors adds a shocking new dimension to the euro zone crisis.

The economic reaction came as no surprise. Shares tumbled lower; the euro fell to a new three-month low, while safe-haven assets such as gold and German government bonds jumped. The cost of insuring the debt of even high-quality European banks against default rose sharply with analysts citing fears the decision could spark contagion across peripheral regions with the potential for widespread outflows of deposits.

"If I were a saver, certainly in Spain or maybe Italy, I think I'd be looking askance at these measures and think this could yet happen to me," global financial economist at Commerzbank Peter Dixon said.

Some credit default swaps in Spanish, Italian and Portuguese banks widened more sharply with the five-year CDS for Spain's Santander 30 basis points higher, while for Italy's UniCredit it was 23.5 basis points wider.

Markets were drawing support from a view that the safety measures put in place at the European Central Bank should contain the fallout.

"Clearly this is a negative development for European assets but in the terms of contagion we think it is quite limited," Guillermo Felices, head euro asset allocation at Barclays in London said.

"There are tools - such as the ECB's OMT (bond buying program) and the option of more 3-year LTROs (ECB loans to banks) that can provide liquidity if needed - that the market will feel comfortable about when assessing the longer-term implications."

Three of the world's biggest central banks are also expected to signal their fresh commitment to loose monetary policies this week.

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