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Prospect of two-speed union comes closer to reality

EUROPEAN leaders thrashed out an agreement last night to save the stricken euro, with a major step taken towards a full economic union in which taxpayers in rich nations would cover the spending of poorer ones.

The attempt to bail out Greece and other struggling eurozone countries raised the prospect of a two-speed European Union with far closer ties between countries using the euro compared with those, such as Britain and Sweden, that remained outside.

Taoiseach Enda Kenny said Ireland's interest rate would now fall by around 2pc from the current 5.8pc.

He said it would be worth around €600m-800m a year.

"The flexibility that we sought under the fund is now available for Ireland," Mr Kenny said. He added: "I am relieved to the extent that the conclusion of this meeting is good for our people and good for our country. We got a good conclusion to this meeting."

Mr Kenny said the Portuguese prime minister was also very happy with the conclusions of the summit.

A key aspect of the agreement is an expansion of the role of the European bail-out programme -- the European Financial Stability Facility (EFSF) -- so it can act more freely. Under the plan the private sector will provide €37bn in support to Greece.

French President Nicolas Sarkozy said there would be no private sector involvement with Ireland or Portugal.

"With respect to the two other countries under the programme, Ireland and Portugal, we are going to reduce rates and lengthen the maturities of the loans granted by the European monetary fund but we will exclude any private sector involvement," Mr Sarkozy said.

President of the European Council Herman Van Rompuy said the eurozone problems could only be solved at the highest level. "We had to act quickly," he said. "Convening this meeting focused the minds and accelerated finding a solution."

Mr Sarkozy said the deal had pulled the eurozone back from the brink of disaster and laid foundations for the creation of an EU "economic government".

He hailed it as "a historic moment" that would provide "bold and ambitious" plans for the creation of an embryonic EU treasury in the form of a European Monetary Fund.

"By the end of the summer, Angela Merkel and I will be making joint proposals on economic government in the eurozone. Our ambition is to seize the Greek crisis to make a quantum leap in eurozone government," he said.

"The very words were once taboo. We will give a clearer vision of the way the way we see the eurozone evolving. We have done something historic. There is no European Monetary Fund yet, but nearly."

At the emergency summit, eurozone leaders opted to double the maturity of Greece's package from seven and a half years to 15 years and cut the interest rate to about 3.5pc.

In a joint statement, the leaders said: "We agree to support a new programme for Greece and, together with the IMF and the voluntary contribution of the private sector, to fully cover the financing gap.

"The total official financing will amount to an estimated €109bn. This programme will be designed, notably through lower interest rates and extended maturities, to decisively improve the debt sustainability and refinancing profile of Greece."

Greece, which has already received a €110bn bailout, is struggling to pay its debts as investors demand ever-higher interest rates to lend to it.

Even large euro countries such as Italy and Spain have seen their borrowing costs jump, raising fears of a financial crisis that could destroy the single currency.

In response, eurozone leaders drew up a deal that will effectively use money from successful northern economies such as Germany to support the budgets of indebted nations in southern Europe.

Greece will receive another bailout worth €110bn and will be allowed to default on some of its debts for the first time. Private investors holding Greek bonds will be asked to contribute to the bailout, losing some of their money, or having to wait longer for repayment. European stock markets and the euro rose as investors bet that the deal would avert any immediate break-up of the single currency.

Irish Independent