EU summit innovations explained

Mariano Rajoy talks to reporters EU leaders finally reached an agreement in the early hours of Friday morning

European Union leaders worked late into the night on Thursday reaching agreements that they hope will restore market confidence in the debt of eurozone members.

Three of the key agreements involved deals on bailout funds, moves towards banking union, and on growth.

Here is some more detail of what has been agreed in each area.

Bailout funds

One of the big questions surrounding the bailout of Spain's banks was which of the European rescue funds would be paying.

The question was whether the money would come from the existing fund, the European Financial Stability Facility (EFSF), or the European Stability Mechanism (ESM), which becomes available next month.

This was an important distinction, because in the event of a default, ESM loans would have taken precedence over other creditors when any available money was being divided up.

That would not have been the case with the EFSF.

But the EU leaders have decided that the loans will come from the EFSF and then the ESM when it is available, but "without gaining seniority status".

The bailout funds will also be used directly to recapitalise Spain's banks without increasing its national debt.

Ireland's bailout may also be restructured in this way.

The distinction between bailing out a country's banks and bailing out the country itself is an important one.

In addition, the funds in the ESM and the EFSF may be used to buy the bonds of individual countries to help make their borrowing more affordable.

Banking union

The moves towards banking union were a big part of the vision for the future of monetary union that was released by EU authorities ahead of the summit.

EU leaders agreed to take steps to set up a single supervisory body for eurozone banks by the end of the year, which is a big first step towards banking union.

The point is that before the banking crisis there were variations in the quality of supervision applied to the sector by national regulators.

The idea is that if the European Central Bank (ECB) gets to regulate all of them, then they will all have to follow the same rules and, it is hoped, be better regulated.

This ties in with the previous point: if the ECB is going to directly recapitalise banks through the bailout funds it wants more power over those banks.

Other steps to come towards banking union are expected to include having a single deposit guarantee scheme across Europe, which makes sure savers do not lose out if a bank goes bust.

By bypassing governments and dealing directly with banks, EU authorities hope to break the link between countries and their banks, allowing the latter to get into trouble without bringing down the former.

Growth

EU leaders agreed to a package of measures to promote European growth, which are worth about 120bn euros ($151bn;£97bn).

Among the recipients for the funding will be the European Investment Bank (EIB).

The EIB will get an extra 10bn euros of capital, which will allow it to borrow the money to increase the amount it can lend by 60bn euros.

The EIB lends money to fund long-term business projects around the European Union.

Another 55bn euros of the money will be used to support small and medium-sized businesses and schemes promoting youth employment.

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