European leaders have reached a consensus about how to move forward with bold crisis mechanisms [Reuters]

European Union leaders have agreed to set up a permanent bail-out fund for eurozone members by 2013, as the region's economic woes gather pace.

Members of the 27-nation bloc agreed to do "whatever is required" to defend the shared euro currency as they met for a two-day summit in Brussels, the Belgian capital.

"The European Union is not only an economic union and a trade bloc, but also an important geopolitical partner," Herman Van Rompuy, the EU president said.
 
"We are clearly moving in the right direction."

Angela Merkel, the German chancellor said the EU "will finalise the details of this crisis mechanism by March and, naturally, it must have sufficient" resources to face future debt shocks.

She and Nicolas Sarkozy, the French president, have said they will present new proposals to reduce differences among the economies that use the euro, with some nations facing high debts.

"We have to tackle the competitiveness gaps within the 16 eurozone nations," Sarkozy said on Friday as the meeting came to a close.

Paul Brennan, Al Jazeera's reporter in Brussels, said the overall message of the meeting appeared to be "that Europe is united in protecting the euro".

But he added that behind closed doors, each country appeared to have its own idea on how to do that.

'Summit vague'

Jonathan Loynes, chief European economist at Capital Economics said the summit was unlikely to ease pressures in peripheral bond markets, saying van Rompuy's speech was "typically vague and short on detail".

The meeting came as credit rating agency Moody's downgraded Ireland's credit rating by five notches and Spain's debt reached its highest point since 1996, according to its central bank.

There are growing concerns in Portugal where borrowing costs have also soared.

Meanwhile leaders at the meeting hailed progress with their strategic international partners, such as the United States, China and India.

EU leaders also decided to grant membership candidate status to Montenegro and praised global moves to combat climate change at a conference in Cancun, Mexico, earlier this month.