Eurozone leaders and private creditors agreed to give Greece a new 159-billion-euro bailout, risking a potential default to prevent the debt crisis from spreading worldwide.

MF director Christine Lagarde gestures during the EU summit.

The eurozone and the International Monetary Fund will provide 109 billion euros while banks will share the pain with 50 billion euros, a total equivalent to $229 billion, under the deal agreed at an emergency summit late Thursday.

"We have shown that we will not waver in the defence of our monetary union and our common currency," said European Union president Herman Van Rompuy.

"This threat had to be contained, otherwise the situation could have led to a serious loss of confidence in our common currency and could even have jeopardised the ongoing economic recovery in Europe and the world."

The leaders agreed a package of measures, including an overhaul of the eurozone crisis fund to help weak nations, after days of market turmoil that shook Italy and Spain, both in the line of fire over their shaky finances.

"All eurozone nations put aside their national selfishness and stated the principle that eurozone states cannot go into bankruptcy," said Italian Prime Minister Silvio Berlusconi.

A breakthrough became possible after the eurozone\'s two powerbrokers, German Chancellor Angela Merkel and French President Nicolas Sarkozy, overcame divisions just hours before the summit.

Leaders dropped the idea of a bank tax to help fund a second Greek bailout but kept German demands for the private sector involvement. Under the deal, private banks agreed to exchange and roll over Greek debt on a voluntary basis.

Changing the terms of outstanding Greek sovereign bonds could prompt rating agencies to declare Athens in default, a scenario that France and the European Central Bank had opposed.

ECB president Jean-Claude Trichet hailed the agreement as a "crucial" step and one which would not trigger a "credit event" obliging creditors to claim insurance for their loans.

But he declined to "prejudge" whether it would amount to a default.

The agreement expands the scope of the eurozone\'s crisis fund, allowing it to relieve debt-stricken nations by buying their sovereign bonds at lower prices on secondary markets and providing bailouts for their banks.

Sarkozy said this amounted to "the initiation of a European monetary fund."

The eurozone will also extend loan repayments and lower the rates paid by Ireland and Portugal, the two other eurozone states who had to be bailed out after Greece.

"That is really a game-changing decision," said IMF chief Christine Lagarde.

To ease Greece\'s debt repayments on its loans, the summit agreed to extend them from 7.5 years to between 15 and 30 years in some cases, and at a rate of 3.5 percent, down from 4.5 percent.

Figures released by the leaders after the summit showed the measures aimed to reduce Greece\'s debt by 26 billion euros -- equal to 12 percent of its Gross Domestic Product -- by the end of 2014.

The package "creates a sustainable path for Greece ... a lightening of the burden on the Greek people," said Greek Prime Minister George Papandreou. Greece has debts of 350 billion euros ($500 billion) or about 160 percent of GDP.

"The only thing we\'re asking for is the right to make deep changes in our country to make our country a viable one, one of growth and jobs creation," said Papandreou. "This is a European success, a European package."

The European Union and IMF\'s 110-billion-euro ($156-billion) bailout of Greece last year proved insufficient, with the financial markets tightening the screws on Athens and setting their sights on Italy and Spain as the next debt dominoes.

Stock markets and the euro shot up on Thursday as draft details that the eurozone was preparing to make fresh loans and bring in the private sector to relieve Greece from its debt crisis began to filter out.

With pressure to address long-standing weaknesses, Sarkozy and Merkel said they would propose in the coming weeks an overhaul of economic governance in the eurozone -- a step towards deeper integration demanded by markets.

"Our ambition is to seize the Greek crisis to make a quantum leap in eurozone governance," Sarkozy said.