Bailout deal agreed by EU leaders

Eurozone leaders reached a “breakthrough” bailout deal early on Friday by using bailout funds to recapitalise struggling banks directly, after all-night talks in a bid to prevent a catastrophic break-up of the single currency.

After 18 disappointing summits since the start of the debt crisis in 2010, the 17 leaders agreed on a series of short-term steps to bring down the borrowing costs of Spain and Italy at a late-night meeting in Brussels, Belgium. 

European Council president Herman van Rompuy announced the deal, calling it a “breakthrough” for the single currency. “We are opening the possibilities for countries that are well-behaving to make use of financial stability instruments, in order to reassure markets and stability around of the sovereign bonds of our member states,” Rompuy said.

In the new agreement, two European bailout funds will pump €120 billion (£97 billion) directly into troubled European banks, rather than make loans to governments to bail out the banks. 

European Financial Stability Facility (EFSF), the EU’s existing bailout fund, will provide aid under the current rules. With the new permanent bailout fund, the European Stability Mechanism (ESM) will take over the role of EFSF next month. Both EFSF and ESM will be used “in a flexible and efficient manner in order to stabilise European government bond markets” to support countries that comply with EU budget policy recommendations, a joint statement agreed by leaders of 17 countries said.

Italian Prime Minister Mario Monti, former European Union commissioner, hailed the agreement as a “very important deal for the future of the EU and the euro zone,” adding, “it is a double satisfaction for Italy.” 

In another significant move, 27 leaders agreed on “four building blocks” towards a tighter economic and monetary union over the next decade, including financial framework, budgetary framework, economic policy framework and a strengthening of democratic accountability.

German Chancellor Angela Merkel said: “We remain completely within our approach so far: help, trade-off, conditionality and control, and so I think we have done something important, but we have remained true to our philosophy of no help without a trade-off.” 

British Prime Minister David Cameron voiced support for the eurozone’s efforts to stabilise the single currency. “For a long time we’ve been saying more action needs to be taken for short term financial stability, more to recapitalise banks, to use firewalls to drive down bond spreads and interest rates, to create greater stability,” he said.

Queenie Man