European leaders threw a critical financial lifeline to struggling Spain and Italy and agreed to a roadmap to restructure the euro currency union at a Brussels summit that continues through Friday.
After marathon overnight talks, the 27 European Union leaders agreed Friday on a series of short and longer term measures to shore up the struggling eurozone. As expected, they signed onto a growth and jobs package worth about $151 billion for the 17-nation area.
At a news conference in Brussels, EU president Herman Van Rompuy said the leaders also agreed that eurozone's permanent rescue fund could be used to help struggling banks, without adding to the sovereign debt of member states.
"Via this procedure, we can recapitalize the banks directly as soon as we have a single European supervisory mechanism, and we can switch from the EFSF to the ESM [permanent rescue fund], so we can break the circle between banks and sovereigns," he said.
Breaking that spiral is critical for Spain and Italy, which have watched their borrowing costs soar in recent weeks.
EU leaders also agreed to set up a supervisory body for eurozone banks by the end of the year and - looking to the long term - to forge a closer economic and monetary union. Van Rompuy said a specific roadmap toward this goal will be presented by the end of October.
European Commission President Jose Manuel Barroso hailed the progress made at the Brussels summit.
"I believe this is, indeed, a very important set of conclusions because it shows substantial commitment to further action," Barroso said. "As you know, before this European Council and this euro area summit, we mentioned it would be important to have decisions on growth - and we have taken those decisions today - but also on the future of the European economic and monetary union and also the possibility of some short term stabilization measures and indeed we have achieved that."
Speaking briefly to reporters early Friday, German Chancellor Angela Merkel also said she was pleased with the outcome.
Merkel said the EU leaders had made good decisions in fighting growth and unemployment and on the future of European bailout funds.
Many analysts doubted that European leaders would make much progress at this summit. Now, many are waiting to see how markets will respond to the decisions they made.