GREEK AID AND DEBT 'HAIRCUT'

Banks and other private investors agreed to take a 50-percent "haircut" on their Greek bond holdings, which is expected to slice 100 billion euros off the country's 350-billion-euro debt mountain.

Under the deal, the debt load would drop from 160 percent of gross domestic product today to 120 percent by 2020. To reach this goal, Greece and private investors will have to agree on a voluntary bond exchange.

Eurozone states vowed to provide 30 billion euros in guarantees to back up the bond swap.

In addition, eurozone leaders agreed a new bailout worth up to 100 billion euros until 2014.

The agreement replaced a deal that had been reached at a July summit, when eurozone states had offered 109 billion euros in aid and banks had agreed to take a 21-percent haircut.

BANK RECAPITALISATION

European Union leaders agreed to force banks to beef up their capital buffers so they can absorb the losses on their holdings of Greek debt.

In a statement, they declared a "broad agreement" for banks to increase their core Tier 1 capital ratio to 9.0 percent of assets by June 30, 2012.

This is two percentage points higher and seven years earlier than under new international banking rules recently agreed in the Basel III regulators accord.

The European Banking Authority (EBA) estimated this would require an extra 106 billion euros ($147 billion) for 70 banks.

In a statement, EU leaders said banks must first try to raise funds through "private sources of capital, including through restructuring and conversion of debt to equity instruments."

Until the target is reached, "banks should be subject to constraints regarding the distribution of dividends and bonus payments."

Governments should provide aid if necessary, the document says. But if such aid is impossible among eurozone nations, the bloc's bailout fund, the European Financial Stability Facility, could provide the money.

BOOSTING BAILOUT FUND'S FIREPOWER

The size of the European Financial Stability Facility (EFSF), the eurozone's main weapon to prevent debt crisis contagion, will be "leveraged" from 440 billion euros to 1.0 trillion euros.

The EFSF will provide risk insurance on new debt issued by fragile eurozone states, a move meant to reassure private investors and keep interest rates as low as possible.

A second option calls for the creation of one or more "special purpose vehicles" aimed at attracting private and public investors from outside the eurozone, including emerging powers such as China.