- Eurozone leaders work through the night to thrash out a deal
- German Chancellor Angela Merkel forced into embarrassing U-turn after abandoning demands for tough reforms in exchange for bailout money
- Leaders agree to lower borrowing costs of Italy and Spain
- Italian newspapers cannot hide their glee with anti-Merkel front pages
- Fears that Britain's financial industry might be left isolated after it was also agreed to create a single supervisory body for euro area banks
By Jason Groves
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Angela Merkel finally gave ground over new measures to save the stricken euro following an extraordinary night of summit brinkmanship by Italy and Spain.
The German Chancellor reluctantly signed off a deal which will allow the eurozone?s ?600billion bailout fund to invest directly in Spain and Italy?s? crippled banks.
British sources last night insisted that no UK taxpayers? money would be involved in the deal, as David Cameron had already extricated us from any involvement in the bailout funds.
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Italian Prime Minsiter Mario Monti (left) chats with German Chancellor Angela Merkel ahead of last night's summit. He forced Mrs Merkel to yield on her insistence on tough reforms in exchange for bailout money
Stock markets across Europe rallied on the news, despite warnings that the complex deal may prove to be yet another ?sticking-plaster? solution.
Mrs Merkel faced an angry backlash in Germany where her previous reluctance to extend aid to the country?s profligate southern neighbours had proved popular with voters. The opposition SPD accused her of making a ?180-degree turn?.
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The ?breakthrough? came after 14 hours of fractious talks during which Italy?s prime minister Mario Monti and his Spanish counterpart Mariano Rajoy threatened to block a ?100billion growth fund unless Mrs Merkel gave way.
In an extraordinary power play they were backed up by France?s new Socialist president, Francois Hollande.
ITALIAN PRESS GUN FOR ANGELA
The Italian media launched an extraordinary attack on Angela Merkel yesterday, as the country gloated about a ?double victory? over Germany.
One newspaper ran a front-page headline saying simply ?F*** Off Merkel?, while Il Giornale screamed: ?Bye bye lard a***?.
Vulgar: Italian newspapers Libero (left) and Il Giornale (right) today launched offensive, front page assaults on Angela Merkel following her demands, which were not met, for a stringent bailout deal
The Italian football team upset the form book to boot Germany out of the Euro 2012 championships on Thursday.
Within hours, at the Brussels summit on the future of the euro, Italy?s prime minister Mario Monti forced German chancellor Mrs Merkel to back down over her refusal to allow Europe?s bailout fund to help the continent?s struggling banks.
Mr Monti emerged from 14 hours of fractious talks to declare his country had achieved a ?double satisfaction? over Germany.
But the newspapers were far more blunt. Libero ran the headline ?F*** off Merkel?, with an image of star striker Mario Balotelli kicking a football bearing the German leader?s face.
Under fire: Mrs Merkel leaves the summit after caving-in to Italy and Spain by abandoning its demands to enforce tough reforms in exchange for rescue money
The attacks continued on page two, with a report on the football match headed: ?Two kicks in the fat a***.?
Both publications support ex-premier Silvio Berlusconi; Il? Giornale is owned by the 75-year-old tycoon?s brother.
Giovanni Melandri, the Democratic Party?s culture spokesman, said: ?These attacks by the Berlusconi press on Mrs Merkel are? vulgar, churlish and disgusting.
?They?re also extremely misogynist.?
Mr Monti even threatened to keep the EU?s 27 leaders in Brussels until Sunday night unless a deal was struck.
Shortly after 4am, Mrs Merkel?s resistance finally crumbled.
In a symbol of the EU?s increasingly two-speed nature, the deal was thrashed out by the 17 eurozone leaders three hours after Mr Cameron and the heads of other non-euro countries had gone to bed.
The new initiative is designed to ease the pressure on Spain and Italy, which have seen their borrowing costs rise to unsustainable levels in recent months because of problems with their banks and debts.
Back of the net: A few hours earlier, Italian striker Mario Balotelli provided a similar thrill for his countrymen by firing two goals past the Germans to take Italy to the finals of Euro 2012
In return, Mrs Merkel demanded agreement that all of the eurozone?s banks would come under the supervision of the European Central Bank in Frankfurt.
Mr Cameron yesterday claimed victory for forcing the EU to back down over plans to hand Brussels control over the regulation of ?all? European banks. The final deal covers only banks in the eurozone countries, leaving the supervision of British banks in London.
The new initiative was widely viewed as the first step on the road towards the creation of a powerful fiscal union.
EUROZONE LEADERS REACT
French President Francois Hollande
'It is very important that we put into motion procedures for immediate action - something that was much hoped for. Bank supervision for a recapitalisation of the banks will take a bit more time, but this will be a lasting move in the right direction.
'We defined a vision for the euro - for economic and monetary union - saying what we will do together, and there will be greater solidarity at each step in integration.'
German Chancellor Angela Merkel
'We have taken important decisions last night. I am very satisfied that we took good decisions on growth.'
Lithuanian President Dalia Grybauskaite
'We are heading for a future where we will need very general supervisory bodies to look more carefully, more strictly, and which are more responsible for the financial sector and banking sector, and that's where we are heading.
'I hope that in a very few weeks, the euro zone leaders will be able to find a concrete mechanism for how to control the not-very-well-behaving banks and to help them.'
European Council president Herman Van Rompuy said officials would now draw up a detailed plan for ?genuine economic and monetary union? within the Eurozone.
?The aim is to make the euro an irreversible project,? he said.
In a key concession by Germany, the leaders agreed to waive the bailout fund?s preferred creditor status on lending for Spanish banks, removing a key deterrent to investors buying Spanish government bonds, who feared having to take the first losses in any debt restructuring.
?We have taken decisions that were unthinkable just some months ago,? European Commission president Jose Manuel Barroso said.
But the deal does not involve any new money and many questions remain about how it might work.
One British source said: ?They?ve kicked the can a bit further down the road this time, but there is still a lot to do.?
Marc Ostwald, market strategist at Monument Securities, said: ?While there may be some temporary sense of relief that the summit has not descended in to acrimonious discord, what has been thus far agreed is nothing more than sticking plaster.?
The deal also includes a pledge to re-examine the strict austerity measures imposed on Ireland as part of its bailout deal.
But the deal played badly in Germany where Mrs Merkel headed straight to Berlin in a bid to sell it to MPs.
Asked if she had yielded to pressure, she said: ?There is clearly pressure from financial markets. Some countries are in a difficult situation. The high interest rates affect the debt but also the real economy. We had an interest in finding solutions.?
But the influential German magazine Der Spiegel said Mrs Merkel had ?caved in on the most important points?.
The magazine accused the Chancellor of leading Germany into an unpopular ?debt union?, adding: ?The reactions at home were devastating; even the vote on the fiscal pact in parliament wobbled. Merkel?s advisers seemed surprised by the force of the attacks.?
The Sueddeutsche newspaper said Mrs Merkel?s compromises ?represent some of the biggest changes in the management of the European debt crisis since Greece received its first rescue package?.
Shattered: An evidently tired David Cameron leaves the EU leaders summit in Brussels at 1am this morning. The 17-nation currency zone went on to agree to emergency action to lower the borrowing costs of Italy and Spain and to create a single supervisory body for euro area banks
Back at it: Cameron returns to the summit this morning after a few hours sleep
Spanish Prime Minister Mariano Rajoy speaks to the press. The summit is a victory for Spain and Italy after the EU leaders agreed to lower the countries' borrowing costs
European Council President Herman van Rompuy announced the 'breakthrough' after David Cameron and the leaders of the other nine non-eurozone members had left the summit, leaving the single currency bloc to thrash out a deal
VIDEO: David Cameron welcomes euro zone decisions?
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