BRUSSELS — After tough all-night bargaining, European leaders appeared to salvage what had seemed to be a summit teetering toward failure by agreeing early today to use the continent's bailout fund to funnel money directly to struggling banks, and in the longer term to the idea of a tighter union.
The bank decision in Brussels was aimed at helping Spain, which sought a $125 billion rescue to help its troubled banks and wound up facing rising borrowing costs for the government.
European Council President Herman Van Rompuy called it a "breakthrough that banks can be recapitalized directly."
In addition, the leaders agreed that EU countries that were following budget rules could apply for bailouts that would not come with the stringent conditions that have accompanied previous EU bailouts — a recognition, said Italian Premier Mario Monti, of the work such countries were already doing in reforming their budgets.
Monti said Italy did not intend to apply for a bailout.
Still, Van Rompuy said the bailout agreement was important.
"We are opening the possibilities for countries that are well-behaving to make use of financial stability instruments ," he said.
That meant, he said, that there would not be any more countries struggling under the stern conditions that have been imposed on previous EU countries that received bailouts — an apparently sharp change in EU policy.
Van Rompuy said leaders of the 17-nation eurozone also agreed to a joint banking supervisory body. And he said the leaders of the full 27-member European Union agreed to a general long-term plan for a tighter budgetary and political union.
The leaders agreed on the "building blocks" of a tighter European Union — but said they wouldn't start pinning down details until a report in October. The building blocks include sharing debt in the form of jointly issued eurobonds.