Europe sealed a last-ditch deal today to fix its festering debt crisis, shoring up its bail-out fund, pledging new funds for Greece and pushing banks to share the pain at a summit vital to the health of the global economy.
After days of talks and two successive summits that dragged on for almost 10 hours, EU president Herman Van Rompuy emerged early this morning saying: "We took important decisions."
Stock markets rallied today after the announcement, while the euro rose as high as $1.42.
European Commission President Jose Manuel Barroso told the European Parliament this morning that the EU would also propose a global financial tax at the coming G20 summit, so that the banking industry would pay for any future crises.
He also said he would ask the EU's Economics Commissioner Olli Rehn to manage the euro.
"Having a commissioner tasked especially with the euro shows that we want euro governance to happen within a communal framework," he said. "It's fundamentally important but also from a symbolic point of view, and symbols are important," he said.
Rehn's nomination could lead to the creation of the job of euro zone finance minister that has been called for by some European leaders.
Earlier European Council President Herman van Rompuy told the parliament that EU states running excessive deficits must present their annual budgets to the Commission and Ecofin council before submitting them to national parliaments.
He said he would give an interim report on the possibility of limited changes to EU treaties by December, but this was not a short-term priority for fixing the crisis.
Read the key aspects of the Brussels deal here
The last and perhaps toughest chapter in the four-point plan was a deal between euro zone leaders and the Institute of International Finance banking lobby to force private investors to take a 50% loss on Greece's debt.
French President Nicolas Sarkozy and German Chancellor Angela Merkel broke off from the summit to save the day and cut a deal with the head of the banking lobby, Charles Dallara.
"We said it was our last word, our last offer," said Merkel of threats to allow Greece to default failing agreement. "We have done what needed doing," she said.
The banks in past weeks had raised their offer to 40% but governments insisted on a 50% "haircut". The deal aims to slice €100 billion off the €350 billion debt pile hampering Greece, which also won new pledges of a €100 billion loan over the next three years.
Deutsche Bank chief Josef Ackermann has said banks made their deal to slash 50% from Greece's debt mountain in order to save Europe.
"All parties have recognised that not only the future of Greece but the future of Europe was at stake," said Ackermann, who chairs the IIF.
Prime Minister George Papandreou, hailed "a new era, a new chapter" for Greece, whose debt woes kicked off a two-year crisis that successively hit Ireland and Portugal before threatening to spill over to the euro area's third and fourth economies, Italy and Spain.
To address that danger, euro zone leaders agreed to boost their debt rescue fund to €1 trillion. The firepower of the European Financial Stability Facility (EFSF) is to be leveraged up between four- and five-fold using clever financial footwork to avoid governments increasing guarantees.
With the world on tenterhooks, emerging powers China and Russia waded in with offers to help Europe safeguard the global economy by contributing to the fund. The development came as global powers, from the US to Japan and China, pressed European leaders to come up with a lasting solution to the debt crisis before a G20 summit in France on November 3 and 4.
Europe's leaders agreed two options to boost the EFSF without increasing commitments from member states as taxpayers in countries such as Germany complain about pouring money down what they see as a bottomless hole.
The first option allows the EFSF to provide risk insurance on new debt issued by fragile governments, in a bid to convince investors to continue buying their bonds and keep interest rates low. A second fund, linked to the EFSF, will be created to attract private and public investors, including countries outside the euro zone.
This investment vehicle could also be associated with the International Monetary Fund, an idea Russia has said it prefers.
With fears growing that the debt drama will turn into a banking system meltdown, European leaders also struck a deal to force banks to recapitalise at a summit of the 27-nation EU that preceded the euro zone talks.
"We made good progress on the bank recapitalisation, that wasn't watered down, it now has been agreed," said British Prime Minister David Cameron. The European Banking Authority said banks would need €106 billion to fulfill the requirements.
Read the full Euro summit statement here
Ireland not looking for Greek-style deal
Finance Minister Michael Noonan said the EU summit agreement was a quantum leap towards a solution to the debt crisis, which threatens the survival of the single currency.
He told RTÉ's News at One it was a comprehensive deal that dealt with all the issues, including bank recapitalisation, preventing contagion, a deal for Greece and governance.
Mr Noonan said Ireland's main strategy was to grow its way out of trouble. He added that Ireland was not looking for a writedown similar to Greece, because Ireland expected to be back in the markets in the second half of 2013. On the other hand, he said, Greece was looking at least another 10 years of austerity programme and possibly 16 years.
He said Ireland had been successful in a "serial re-negotiation" of aspects of its EU/IMF programme, and while it aimed to reduce the overall burden of the debt, the Government would not touch its sovereign debt.
