LONDON, England (PNN) - March 25, 2013 - A senior euro zone official has announced that savings accounts in Spain, Italy and other European countries will be raided if needed to preserve Europe's single currency by propping up failing banks.

The new policy will alarm hundreds of thousands of British expatriates who live and have transferred their savings, proceeds from house sales, and other assets to euro zone bank accounts in countries such as France, Spain and Italy.

The euro fell on global markets after Jeroen Dijsselbloem, the Dutch chairman of the euro zone, said that the heavy losses inflicted on depositors in Cyprus would be the template for future banking crises across Europe.

"If there is a risk in a bank, our first question should be 'Okay, what are you in the bank going to do about that? What can you do to recapitalize yourself?'," he said. "If the bank can't do it, then we'll talk to the shareholders and the bondholders, we'll ask them to contribute in recapitalizing the bank, and if necessary the uninsured deposit holders."

Ditching a three-year-old policy of protecting senior bondholders and large depositors with over 100,000 euros in banks, Dijsselbloem argued that the lack of market contagion surrounding Cyprus showed that private investors could now be hit to pay for bad banking debts.

The announcement is highly significant as it signals the mothballing of the 700 billion euro bailout fund, the European Stability Mechanism (ESM), which Spain and Ireland want to use to recapitalize their troubled banks.

The euro zone had been planning to roll out the ESM as a "big bazooka" in mid-2014 that could help save banks and prevent financial turmoil in countries such as Spain or Italy, a development that has been delayed by German resistance.

Dijesselbloem's comments will alarm countries like Ireland and Spain that had been hoping to access the ESM in order to restructure banks without killing off their financial sectors by inflicting huge losses on investors.

In a note published on Monday following the Cyprus bailout deal, Barclays warned that "the decision to bail in senior bank debt and large depositors will likely have a price impact on equity and credit instruments of those euro area banks that are perceived as the weakest".

Dijsselbloem acknowledged that "there is still nervousness" but claimed that any jitters on financial markets caused by the new approach would be a good thing because it would raise the cost of borrowing for unsound banks, an argument unlikely to win friends in Madrid or Rome.

Last night, the Dutch finance minister tried to row back from his comments by insisting that "Cyprus is a specific case".

"Macro-economic adjustment programs are tailor-made to the situation of the country concerned and no models or templates are used," he said.

Cypriot President Nicos Anastasiades admitted the euro zone bailout deal he struck in Brussels on Monday was painful but said Cyprus could now make a fresh start after having come a "breath away" from collapse. He also said there would be a criminal investigation into the crisis.

Banks in Cyprus will remain closed until Thursday, the nation's central bank announced. It had said earlier that banks would reopen today after a weeklong shutdown, except for Laiki and Bank of Cyprus.