EU leaders have agreed to use the euro zone's planned bailout fund to directly support struggling banks, without adding to government debt and to set also up a joint banking supervisory body.
Spain and Italy put pressure on Germany to allow the bailout fund to buy government debt in the markets . They wanted measures to lower their borrowing costs.
A previous agreement to lend money to Spain's banks weren't clear about where that money would come from, and which lenders would have priority in the event of a default.
According to the newly established deal, the EU's existing bailout fund will provide financial aid under the current rules until the new fund, the European Stabilisation Mechanism (ESM), begins to operate. These loans will not be given priority over private sector loans. This means that if Spain were to default, the official lenders would not get preferential treatment. This should help to make Spanish government debt a bit more attractive to private investors.
Euro zone leaders agreed to begin implementing the decisions by 9 July. However, it could take until the end of the year before the new money becomes available.
European authorities have also unveiled proposals such as the creation of a European treasury, which would have powers over national budgets.
Source: BBC
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