EU leaders reach Greek bailout deal

A deal has been reached to help Greece tackle its debt crisis, after negotiations between Europe's leaders in Brussels this morning.

The European Union's president, Herman Van Rompuy, told reporters that an agreement had been hammered out. The move followed talks involving the German chancellor, Angela Merkel, and French president Nicolas Sarkozy.

Although no details were given, Van Rompuy said: "Euro area member states will take determined and co-ordinated action if needed to safeguard stability in the euro area as a whole. The Greek government has not requested any financial support."

But Merkel, under pressure from domestic coalition partners who say that Greece should put its own house in order, warned that the deal would come with strings attached: "Greece won't be left alone but there are rules and these rules must be adhered to. On this basis we will agree on a statement."

Later she said that the decision on Greece was underwritten by all 27 EU member states and that the situation would be looked at again next month.

She added that France and Germany believed there should be a "new architecture for markets", suggesting that Paris and Berlin will use the crisis to pursue their agenda of reform of the world's financial markets in the wake of the recession.

The moves in Brussels, which Merkel called a "clear political signal", was intended to reassure markets that today's summit of EU leaders would address the worst crisis in the 11-year history of the single currency.

However, financial markets remained cautious today, given the lack of detail about the plan, and the euro lost ground against the pound and dollar. The FTSE 100 index in London also fell back into negative territory in the early afternoon after Wall Street opened down on scepticism about the rescue, which is expected to take the form of loans to Greece.

"The EU news on Greece wasn't all that outstanding. There wasn't a firm plan announced," said Peter Jankovskis, of OakBrook Investments in Illinois.

Earlier, the prime minister of Greece had appealed for "psychological and political support" as Europe's leaders gathered to try to hammer out a bailout for their debt-laden neighbour.

George Papandreou told Le Mondethat it was important that the eurozone countries acted together to address the crisis. Papandreou said he expected fellow European leaders to support his efforts to cut Greece's debt, which is expected to hit 120% of GDP this year.

Britain, though, had already ruled out contributing to any rescue. The chancellor, Alistair Darling, said there was no plan to use UK taxpayers' money to support Greece. "The other members of the euro group want to monitor and manage the situation very carefully, they may have fresh proposals to make," Darling said.

Papandreou told the French newspaper that Europe must say "yes, Greece is credible, we guarantee that their program is realistic".

The ongoing crisis has seen financial traders take huge bets against the euro, speculating that Greece will fail to solve its financial woes. Papandreou argued that this meant it was particularly important the rest of Europe agreed a deal.

"If the speculation continues, it is not the business of Greece but of the eurozone and Europe. It becomes a question of collective will to regulate the speculation," he said.

Papandreou told Le Monde that he did not expect the International Monetary Fund would have to become involved in the rescue. The Austrian chancellor, Werner Faymann, though, predicted that IMF funds would make up a significant part of any bailout, along with loans from European Union members.

"We don't know yet how it will be organised, but I expect it will be a cooperation between [EU member] countries and the IMF," Faymann told the Austrian radio station ORF.

"We are not talking about a donation or subsidies, we are talking about loans with interest, which we provide to help a country in order to avoid irritations on financial markets and crises nobody can handle anymore," Faymann said.

The summit was officially meant to cover medium-term European economic strategy, but was dominated by the crisis in Greece. It had earlier emerged that Germany and France were likely to stand together and pledge to come to Athens's aid by guaranteeing Greek solvency.

City experts warned the crisis would have a critical influence on bond markets as well as currency values. "The EU will need to show unanimity; any sign of fragmentation will see currency mavericks draw metaphorical blood," warned David Buik of BGC Partners.

"Few would be surprised if the IMF were brought into the equation. There is a real threat of a domino effect and it could implode across the region," Buik warned.

Expectations of a Franco-German initiative had hardened after a day of frantic discussions in Brussels and across Europe over what to do about Greece and the mixed signals over the timing and substance of the response.

Finance ministers of the eurozone, as well as Jean-Claude Trichet, the European Central Bank president, and Olli Rehn of Finland, the European commissioner for economic and monetary affairs, discussed their options by video conference.