|A major point of contention had been the speed at which states would pay their contributions into the fund [AFP]
European leaders have agreed to introduce a permanent eurozone bailout fund, broadly accepting a deal reached by their finance ministers on March 21.
The new fund, to be called the European Stability Mechanism (ESM), to be launched in mid-2013, will require €80bn in cash provided by eurozone countries in five equal annual instalments as well as €620bn in guarantees.
Under the deal, the ESM would be able to use up to €500bn to come to the aid of debt-ridden countries such as Greece.
Friday's annoucement was overshadowed by worries about Portugal's economy amid concern it will be forced to call upon the use of the eurozone's current bailout fund, the European Financial Stability Facility (EFSF), which the ESM will replace.
A major point of contention had been the speed at which nations would pay their contributions into the fund.
At the meeting of European leaders in Brussels, Angela Merkel, the German chancellor, was able to persuade her European counterparts to restructure the fund so that members will not have to pay cash into the fund so quickly.
The leaders issued a "term sheet" outlining details of the ESM on Friday which now has to be prepared as a legal text of an amendment to the European Union treaty.
Leaders want to sign the amended treaty by the end of June.
Before then, finance ministers will need to sort out some remaining technical details of the agreement and the overall deal will need parliamentary approval in several countries, including Germany.
The meeting of EU leaders also agreed to the restructuring of the EFSF, the current financial bailout fund, increasing its lending capacity to €440bn and announcing that it would be in place by the summer.
Eurozone ministers had agreed on March 11 that the lending capacity of the EFSF, now at €250bn, should be raised to €440bn, but had left it to their finance ministers to work out how this would be achieved.
"We have agreed to ensure that a temporary facility has an effective lending capacity of €440 billion euros. It will be in place in June," Herman van Rompuy, the European council president, told a news conference in Brussels.
Jose Socrates, Portugal's outgoing prime minister, insisted on Friday that his country did not need a financial rescue package.
"Portugal does not need a financial rescue plan and I will maintain this in defending my country," Socrates told journalists following the EU summit in Brussels.
"I know what this meant for Ireland and Greece, and I don't wish it on my country," he said of the two fellow eurozone countries that were forced to take multi-billion-dollar bailouts in exchange for tough austerity measures.
"Portugal must demonstrate that it is a country that can resolve its own problems," added Socrates who resigned on Wednesday after his latest austeriy measures were defeated in a parliamentary vote.
He warned that Europe would suffer if Portugal was forced to tap into the eurozone financial rescue fund.
"The idea that Europe would be defending itself if Portugal asks for external aid is childish. This would be detrimental to Europe, to the prestige of Europe," he said.
"Even worse, this would mean that we would put more countries at risk, giving credence to the domino effect."
All five opposition parties voted against Socrates' minority government's latest package of austerity measures, which proposed further tax hikes and social spending cuts.
However, the prime minister insisted that his country would meet its budget commitments for this year.
He said: "The 2011 objectives will be reached. All measures for this year have been implemented.
"I understand that a political crisis doesn't help, but this crisis will not distract Portugal from meeting its responsibilities for the country and for Europe.
"I hope the markets can understand that Portugal is a country that is committed to the European project and the single currency."