EU all-nighter

It was 4 a.m. Thursday in Brussels when French President Nicolas Sarkozy stepped up and began to detail the outcomes of a hard night's haggling. The sticking point that had slowed proceedings most dramatically appeared to be a deal under which banks would accept a 50 percent loss on their investments in Greek sovereign bonds. Sarkozy and German Chancellor Angela Merkel had held face-to-face talks with leading banking industry representatives in the early hours of the morning as progress on this front faltered.

"[German Chancellor Angela] Merkel and I have been in contact with representatives of the bankers - not to negotiate, but to inform them of the decisions of the 17 eurozone members," Sarkozy told reporters. "They themselves reflected on this and gave their consent."

This banking deal, however, is still officially voluntary, meaning private lenders will have to agree to it individually.

Greek Prime Minister George Papandreou hailed this debt write-off as the start of a "new era" for Greece.

The French president went on to say that Europe's leaders had agreed to a "three-pronged plan" to tackle its sovereign debt woes. Besides the deal on Greek debt with private sector banks, leaders agreed to boost the theoretical size of the bloc's rainy-day fund - the European Financial Stability Facility - to roughly 1 trillion euros ($1.4 trillion), and to mandate that banks across the continent increase their capital reserves by 106 billion euros so as to better shield them from market volatility.

Sarkozy said that the world was expecting decisive action from the summit, and that he thought the agreements reached in the early hours of Thursday in Brussels would satisfy these demands.

The world was watching

"These are exceptional measures for exceptional times. Europe must never again find itself in this situation, this is why we must further improve our economic governance," European Commission President Jose Manuel Barroso said after the meetings.

Chancellor Merkel, who also highlighted the importance of more closely coordinated and stringently supervised economic governance, said after the marathon summit that the deals showed how European leaders could "draw the right conclusions" as they seek to combat the bloc's debt problems.

"I am very aware that the world was watching these debates today," the chancellor said, also praising the banks for their readiness to contribute to attempts to reduce Greece's untenable levels of debt. She said they were now "substantial" participants in efforts to bring the country from the brink of bankruptcy. Sarkozy and Merkel both estimated that banks would write off roughly 100 billion euros as part of this agreement, which will affect all European lenders, including those in Greece.

British Prime Minister David Cameron, speaking earlier in the night on the sidelines of the summit, had highlighted the importance of the deal to recapitalize the bloc's banks, saying it was very important to countries outside the eurozone that the fragile banking sector was stabilized.

The European single currency, the euro, reacted positively in trading on Asian markets shortly after the conclusion of the summit.

Author: Mark Hallam (AFP, AP, dpa, Reuters)
Editor: Holly Fox