Eurozone strikes 159-billion-euro Greece rescue

The private finance sector agreed to provide 50 billion euros of funding which will be added to 109 billion euros from European governments and the International Monetary Fund, in a deal reached at an emergency summit.

"We have shown that we will not waver in the defence of our monetary union and our common currency," said EU president Herman Van Rompuy.

"This threat had to be contained, otherwise the situation could have led to a serious loss of confidence in our common currency and could even have jeopardised the ongoing economic recovery in Europe and the world."

As part of the package, the eurozone will offer Greece lower interest rates and extended maturities "to decisively improve the debt sustainability and refinancing profile" of the country, according to the summit statement.

"The financial sector has indicated its willingness to support Greece on a voluntary basis," it said, a crucial point for how the agreement is viewed by markets, which could consider the deal as an effective Greek debt default.

The head of the IMF, Christine Lagarde, declined to say how much of the new bailout the international lender would provide, saying Greece had yet to formally approach it for a loan.

European Central Bank chief Jean-Claude Trichet hailed the agreement as a "crucial" step and one which would not trigger a "credit event" obliging creditors to claim insurance for their loans.

He declined to "prejudge" whether it would amount to a default.

The agreement expands the scope of the eurozone's crisis fund, allowing it to relieve debt-stricken nations by buying their sovereign bonds at lower prices on secondary markets and providing bailouts for their banks.

"Euro area member states have agreed to significantly improve the financing terms with Greece," Lagarde told reporters. "That is clearly a major improvement."

The agreement also agrees to extend loan repayments and lower the rates paid by Ireland and Portugal, the two other eurozone states who had to be bailed out after Greece.

"That is really a game changing decision," Lagarde said.

To ease Greece's debt repayments on its loans, the summit agreed to extend them from 7.5 years to between 15 and 30 years in some cases, and at a rate of 3.5 per cent, down from 4.5 per cent.

Figures released by the leaders after the summit said the measures would reduce Greece's debt by 26 billion euros -- equal to 12 per cent of its Gross Domestic Product -- by the end of 2014.

The package "creates a sustainable path for Greece ... a lightening of the burden on the Greek people," said Greek Prime Minister George Papandreou. Greece has debts of 350 billion euros ($500 billion) or about 160 per cent of GDP.

"The only thing we're asking for is the right to make deep changes in our country to make our country a viable one, one of growth and jobs creation," said Papandreou. "This is a European success, a European package."

A breakthrough became possible after the eurozone's two powerbrokers, German Chancellor Angela Merkel and French President Nicolas Sarkozy, reached a compromise just hours before the summit.

Leaders dropped the idea of a bank tax to help fund a second Greek bailout but kept German demands for private sector involvement, even at the risk of triggering a default.

There are concerns that changing the terms of outstanding Greek sovereign bonds could prompt rating agencies to declare Athens in default, with potentially dramatic knock-on consequences.

The European Union and IMF's 110-billion-euro ($156-billion) bailout of Greece last year proved insufficient, with the financial markets tightening the screws on Athens and setting their sights on Italy and Spain as the next debt dominoes.

Stock markets and the euro shot up on Thursday as draft details that the eurozone was preparing to make fresh loans and bring in the private sector to relieve Greece from its debt crisis began to filter out.

"The markets feel quite secure that significant progress will be made today that will probably change the shape of the Eurozone as we know it," said Kathleen Brooks of research group Forex.com.

"History is in the making. We suspect there will be steps to closer economic and fiscal integration after today's summit."