With Cypriot banks closed, RAF rushes €1-mn cash to British troops

British troops in Cyprus have been extended a €1 million cash line by the UK as the debt-ridden country thumbed down a plan to tax savings.

According to the UKs ministry of defence, the funds were flown to the Mediterranean island by the RAF as a 'contingency measure' for military personnel and their families.

The money will be used to support struggling soldiers and their families in the event of cash machines and debit cards not working in the wake of the EU's proposed tax raid on Cypriot banks to raise funds under the EU bail-out arrangement (See: Cyprus move to tax bank accounts jolts global markets).

The dramatic move comes with the rejection of the terms of the bail-out by the Cypriot parliament, which has opened up the possibility of the collapse of Cyprus's two biggest banks and worse, leading to a possible domino effect across the eurozone.

Meanwhile, in order to avert a run on accounts, Cyprus has shut its banks until at least tomorrow with the local stock exchange also remaining closed.

Sounding a note of warning, German finance minister Wolfgang Schaeuble said it was not clear if the banks would be able to open again. Analysts fear the controversial tax could reignite the eurozone crisis.

Weighed down by its €14-billion debt burden the Cypriot government sought to raise finances through a tax on savings - those with deposits of €20,000- €100,000 would have had to pay a charge of 6.75 per cent, while people holding savings over €100,000 would have been liable for a 9.9 per cent levy.

The country is seeking a €10-billion bailout from the EU and International Monetary Fund, for which it needed to raise €5.8 billion.

However, the rejection of the proposal was met with cheers by protesters outside the parliament, even as President Nicos Anastasiades warned of looming bankruptcy if the proposals were rejected.

The controversial one-off levy of up to 10 per cent on savings had been proposed to pay off the £8.6 billion bail-out loan to Cyprus. An angry backlash followed with fears of a run on the country's banks, which had been closed since before the weekend.

The country has around 3,000 British military personnel with around 25,000 UK expats.

In addition to the emergency fund, the MoD is asking service personnel to indicate if they preferred salaries for the month and future salaries to be paid into UK bank accounts.