EU clinches deal to combat crisis

Eurozone leaders agreed early Friday to work towards a tighter economic and monetary union through more centralised budget oversight to protect their single currency from future crises.

EU president Herman Van Rompuy announced after marathon talks in Brussels that leaders tasked him and European Commission president Jose Manuel Barroso to present a report in October outlining the long-term strategy.

"It will be quite a job to get this ready before the end of October but the (European) Council wants us to speed up the work," said Van Rompuy, who presented an initial report to European Union leaders on Thursday.

His report set out "four essential building blocks" for a closer union, including a banking union, joint budgetary decisions, deeper economic integration and a strengthening of "democratic accountability."

"It was extremely important that we agreed not on the report itself but on a clear vision about what has to be done," Van Rompuy said. "The aim is of course to make the euro an irreversible project."

Van Rompuy still has some convincing to do.

French President Francois Hollande sees integration going hand-in-hand with the pooling of debt, an idea opposed by German Chancellor Angela Merkel.

"There cannot be a transfer of sovereignty if there is no solidarity," Hollande told reporters.

Italian Prime Minister Mario Monti said he believed the agreement opens the door to so-called eurobonds.

What was agreed

In what European Union president Herman Van Rompuy described as a "real breakthrough", leaders agreed a 120-billion-euro growth pact, short-term measures to help Spain and Italy and a longer-term roadmap to reshape the 17-nation eurozone.

Following is a list of the main points agreed:

GROWTH PACT:

-- A package of measures worth some 120 billion euros ($150 billion) to stimulate growth in the European Union by harnessing unused funds from the EU budget, raising the capital of the European Investment Bank and funding "project bonds" for infrastructure programmes.

-- The package also includes measures to boost employment, in particular for young people, as well as a proposal to increase labour mobility throughout Europe.

SHORT-TERM MEASURES:

-- Leaders committed to setting up a supervisory body for banks in the eurozone, involving the European Central Bank, "as a matter of urgency by the end of 2012."

-- When such a body is established, leaders said that the 500-billion-euro ESM bailout fund that is due to come into force next month could directly recapitalise banks, under specific conditions.

-- Leaders said that loans given by the ESM to Spain to recapitalise its banking sector would no longer have to be paid back before other loans in case of default, a very important factor for market participants.

-- Leaders pledged to use their bailout pots "in a flexible and efficient manner in order to stabilise markets" for countries that are respecting deficit targets. This is a reference to buying bonds to drive down borrowing costs.

-- The ECB has agreed to act as an agent to the bailout funds in conducting operations on the bond markets.

LONGER-TERM MEASURES:

-- Eurozone leaders agreed to "work towards a tighter economic and monetary union" via closer budgetary and financial cooperation in a bid to prevent such a crisis happening again.

-- EU president Herman Van Rompuy said leaders agreed on four "building blocks" to achieve this closer union: financial framework, budgetary framework, economic policy framework and a strengthening of democratic accountability.

-- Van Rompuy was tasked with presenting a further report in October giving more detail on the timelines for reforms, which could result in a banking union and, much further down the road, joint debt issuance.

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