Eurozone boosts emergency funds
The 17 countries that use the euro have boosted their emergency funding for heavily indebted countries to 800 billion euro (£667 billion) - an amount that falls short of what the currency union's international partners had said is needed to calm financial markets.
Of the 800 billion euro limit eurozone finance ministers agreed to, only 500 billion euro (£417 billion) is still available for new bailout loans. About 300 billion euro (£250 billion) in loans has already been used to bail out Greece, Ireland and Portugal.
The International Monetary Fund (IMF) and others have been calling for a financial "firewall" of more than one trillion euro (£834 billion) - just in case the much larger economies of Spain and Italy need assistance.
IMF managing director Christine Lagarde congratulated European leaders on their agreement, but did not say whether it went far enough to guarantee additional help from the IMF.
"I welcome the decision of euro area ministers to strengthen the European firewall," Ms Lagarde said in a statement. "The IMF has long emphasised that enhanced European and global firewalls, together with the implementation of strong policy frameworks, are critical for ending the crisis and securing international financial stability."
Stock markets recovered some ground after sharp losses this week. Germany's DAX closed 1% higher at 6,946.83 while the CAC-40 in France rose 1.3% to 3,423.81 and Britain's FTSE 100 gained 0.5% to 5,768.45.
Many economists fear that further trouble in Europe could smother a burgeoning economic recovery in other parts of the world. Together, Italy and Spain hold more than 2.5 trillion euro (£2.1 trillion) in debt and a default - or even the serious threat of a default - could pummel banks across Europe and spread panic on global markets.
But rich countries such as Germany and Finland face rising opposition against bailouts among their voters, while the finances of many other states are already overstretched.
Analysts said the agreement did not come as much of a surprise, as it was closely modelled on a proposal made earlier this week by Europe's largest economy.
"Today's decision is a classical European compromise. It was as far as the German government was willing to go and it was the minimum most other eurozone countries were expecting," said Carsten Brzeski, senior economist at ING.