It makes up just 0.2% of the euro zone economy but the crisis in Cyprus could shake the foundations of the whole bloc.

The Cypriot government has now proposed sparing small savers from a divisive tax on bank deposits.

But the Cypriot President believes with no party majority parliament is still likely reject a proposed bailout plan.

That will leave the tiny island facing default and a banking collapse.

SOUNDBITE Cypriot President, Nicos Anastasiades, saying (English):

"The feeling I'm having is that the house is going to reject the bill." (Reporter asking: Why is that?) "Because they feel and they think it's unjust and that it is against the interests of Cyprus at large." (Reporter asking: How will you treat this information and what will you do with it?) "We have our own plans."

Euro zone leaders agreed at the weekend to give Cyprus a 10bln euro bailout.

But the deal is on condition Cypriot banks raise the rest of the money from savers.