Jose Manuel Barroso: "We need to show our citizens there is hope"
European leaders have reached a "three-pronged" agreement described as vital to solve the region's huge debt crisis.
Shares on European markets rose sharply on news of the deal.
The agreement is aimed at preventing the crisis spreading to larger eurozone economies like Italy, but the leaders said work still needed to be done.
After marathon talks in Brussels, they agreed a mechanism to boost the eurozone's main bailout fund to about 1tn euros (£880bn; $1.4tn).
Banks must also raise more capital to protect them against losses resulting from any future government defaults.
BBC business editor Robert Peston says it is perfectly clear that EU leaders have bought some time, and for a few weeks and maybe longer the markets will give them the benefit of the doubt.
The framework for the new fund is to be put in place in November.
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“Start Quote
All of these calculations, commitments and expressions of determination can be dismissed if Europe's weakest countries do not return to growth”
Meanwhile EU leaders welcomed Italian Prime Minister Silvio Berlusconi's pledge to balance his country's budgets and implement reforms to bring down its 1.9tn-euro debt.
'Ambitious response'
The announcement of the deal helped lift the euro, with investors reacting positively to the outlook for the region's growth and single currency.
"The eurozone has adopted a credible and ambitious response to the debt crisis," a visibly tired French President Nicolas Sarkozy said at a news conference early in the morning in the Belgian capital.
"Europe is closer to resolving its financial and economic crisis," said Jose Manuel Barroso, president of the European Commission, in a report later to the European Parliament.
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There are some large numbers in this Eurozone deal - a four- or five-fold increase in the firepower of bailout arrangements for struggling governments, giving a total of 1tn euros or more; a reduction of half in the debts owed by Greece to leading banks.
On Greece, the headline figure for the debt reduction has been agreed, but the financial detail has not. Even if it goes ahead, the aim is get the debt burden down to 120% of national income by 2020 - the level Italy has today, which is still large enough to be a problem.
And then there is the question of whether that 1tn euro firepower is sufficient. Many experts wanted to see double that. Many also wanted to see the European Central Bank at the centre of the exercise, but that has been ruled out because of German fears about possible inflationary consequences. So the eurozone countries have not mobilised the massive financial firepower they could have. But it is a substantially bigger show of force than they have managed before.
Analysis
On Greece, the headline figure for the debt reduction has been agreed, but the financial detail has not. Even if it goes ahead, the aim is get the debt burden down to 120% of national income by 2020 - the level Italy has today, which is still large enough to be a problem.
And then there is the question of whether that 1tn euro firepower is sufficient. Many experts wanted to see double that. Many also wanted to see the European Central Bank at the centre of the exercise, but that has been ruled out because of German fears about possible inflationary consequences. So the eurozone countries have not mobilised the massive financial firepower they could have. But it is a substantially bigger show of force than they have managed before.
"We are showing that we can unite in the most difficult of times."
Critics have accused policymakers of not doing enough to resolve the issues, contributing further to problems and fuelling uncertainty.
Leaders of the 17 eurozone nations had been in meetings since Wednesday trying to hammer out a deal to help Greece put its national finances in order and underpin other European economies such as Italy.
Speaking after the deal was agreed, Mr Sarkozy said that "the complexity of the files, the necessity to get everybody to agree, means that we have been negotiating for long hours".
He said he believed the result would be a relief for "the whole world", which had been expecting a strong decision from the summit.
Because banks have agreed to shoulder losses on Greek bonds, the country's burden has been reduced, cutting its debt down to 120% of its gross domestic product by 2020.
'Marathon not sprint'
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Eurozone deal
- Private banks holding Greek debt accept a 50% loss
- European Financial Stability Facility (EFSF) to be boosted to 1tn euros ($1.4tn:£880bn)
- Banks told to recapitalise by 106bn euros
Greek Prime Minister George Papandreou hailed the deal, saying: "We can claim that a new day has come for Greece, and not only for Greece but also for Europe."
Bank recapitalisation - the third key element of the package - was agreed earlier.
The banks would now be required to raise about 106bn euros in new capital by June 2012, and governments may have to step in despite the unpopularity of further bank bail-outs.
It is hoped that this would help shield them against losses resulting from any government defaults and protect larger economies - like Italy and Spain - from the market turmoil.
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Crisis jargon buster
Use the dropdown for easy-to-understand explanations of key financial terms:
AAA-rating
The best credit rating that can be given to a borrower's debts, indicating that the risk of borrowing defaulting is miniscule.
"The package that we have agreed tonight, a comprehensive package, confirms that Europe will do what it takes to safeguard financial stability," said Mr Barroso, announcing the deal.
"I've said it before and I'll say it again, this is a marathon not a sprint."German Chancellor Angela Merkel, who was a key negotiator in thrashing out the deal, said: "I think we were able to meet expectations and we have done what needed doing" for the euro.
IMF chief Christine Lagarde, who was also at the Brussels summit, said she was "encouraged by the substantial progress made on a number of fronts".
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