THE economy of Cyprus hangs in the balance today after its MPs rejected a controversial levy on people's savings, designed to help pay for a €10 billion European Union bailout.

President Nicos nastasiades has called an emergency meeting of political party leaders this morning to discuss the way forward but fears are growing as banks on the Mediterranean island are due to open tomorrow with the prospect they will quickly run out of cash.

As a contingency, the Ministry of Defence yesterday loaded a plane with €1 million (£856,000) and flew it out to Cyprus to ensure the 3000 British troops stationed there could access money should cash machines and debit cards stop working. The MoD said it was determined to minimise the impact of the Cyprus banking crisis on "our people" and would consider more shipments.

The move came after Chancellor George Osborne, faced with MPs' growing fears that UK armed forces personnel might lose out, told Cabinet colleagues all military staff would be "compensated in full". This followed a Commons statement by Treasury Minister Greg Clark, who said they would only be compensated for "reasonable losses".

In Nicosia last night, thousands of protesters outside the parliament building reacted with joy when news came through that MPs had rejected the proposed levy on savings.

Mr Anastasiades had warned Cyprus would be bankrupt if the deal were rejected after the EU said it would withhold the bailout if MPs rejected the levy.

Nonetheless, they did so overwhelmingly despite the fact that the package had been changed to exempt savers with small deposits.

Athanasios Orphanides, the former Central Bank of Cyprus chief, noted: "What we are witnessing is the slow death of the European Project."