Nicolas Sarkozy arrives at EU summit. (AP Photo)

European leaders moved Friday to stanch the region’s lingering financial crisis, agreeing to $145 billion in new loans to Greece and measures to prop up weak banks and other national governments. A separate initiative allows private bondholders to help but raises the prospect that Greece will be considered in default on some of its debt.

The measures approved in Brussels mark a major financial consolidation of the 17 nations that use the euro — effectively pledging the creditworthiness of stronger countries such as Germany and France, and the resources of their taxpayers, to prop up failing banks or ailing governments throughout the euro zone.

After weeks in which financial markets began to threaten larger European economies such as Spain and Italy, officials said they were intent on erecting an effective “firewall” to protect their financial system — and the dec­ade-old euro currency.

“We could not allow a difficult situation to become a dangerous one. The threat had to be contained,” European Council President Herman Van Rompuy said at the end of a nine-hour negotiating session. “This is a strong package.”

Markets rallied as expectation of a deal mounted through the day, with bank stocks in Europe climbing dramatically and major indices in Europe and the United States posting strong gains.

The program for private bondholders, expected to be worth about $70 billion to Greece over the next three years, carries some uncertainty. Though offered voluntarily as a way to allow investors to swap existing bonds for longer-term notes, lessening Greece’s need for cash, it may prompt credit-rating agencies to declare the country in default.

The new program tries to work around that problem, and in particular to answer the threat that the European Central Bank would stop lending money to Greek banks if a default declaration were made. The program guarantees Greek banks access to cash and offers the ECB billions in guarantees and extra capital so that it will continue its lending.

ECB President Jean-Claude Trichet said he was satisfied with the outcome, although “we don’t know yet what the consequences will be” when rating agencies study the plan.

A U.S. official who spoke on the condition of anonymity said the program should prove a substantial step toward stabilizing Europe’s problems. President Obama has consulted with German Chancellor Angela Merkel, in particular, and encouraged aggressive steps.

The International Monetary Fund’s managing director, Christine Lagarde, the former French finance minister who helped craft last year’s unsuccessful response to the European crisis, called the new program “comprehensive and constructive.”

The centerpiece of the program is new loans to Greece, a country whose existing $160 billion rescue plan slipped off course with a deeper-than-expected recession and slower-than-expected economic reform. Buried under more than $400 billion in outstanding loans, the equivalent of 150 percent of the country’s annual economic output, Greece’s economy is still contracting
and unemployment has topped 16 percent.

The new loans will be offered at a low 3.5 percent interest rate and a repayment schedule as long as 30 years, concessions meant to “decisively improve” Greece’s debt load, according to the announcement of the plan. The same loan terms will be offered to Ireland and Portugal, euro-zone nations that are also under joint European-IMF rescue programs.

The IMF is expected to participate with new loans of its own.

In addition, the Institute of International Finance, a trade group that represents the world’s major financial institutions, published separately a “financing offer” negotiated with the government of Greece under which private bondholders can swap their existing bonds for longer-term ones. Greece may also use a debt buyback to reduce the amount of bonds outstanding.

Josef Ackermann, chairman of the IIF and head of Deutsche Bank, said the offer “can contribute substantially to improving the competitiveness of the Greek economy.”

The new program follows a tense few weeks in which the Greek government was close to running out of money and the rule of Prime Minister George Papandreou was at risk of collapse. The turbulence threw a spotlight on heavily indebted Italy and Spain as well, raising fears that two of Europe’s largest economies were nearing the brink — with risks that the IMF, the White House and others worried could shake the global recovery.

European leaders feel they have now taken a major step in defending the euro, a project meant to cement the economies of modern Europe more closely together. The new measures attempt to secure the European financial system from two problems that have become dangerously intertwined: the large amounts of debt accumulated by euro-zone governments, and the vulnerability of banks that have purchased most of those government bonds and would face collapse if they are not repaid.

Whether the program provides anything more than a pause in the crisis, however, remains to be seen. The euro area is deeply divided between countries such as Germany that are prospering in the recovery, and those such as Spain and Italy that are mired in low growth and high debt payments.

The main changes come in the nature of a year-old bailout fund, the European Financial Stability Facility, that was set up to lend money directly to countries that run into financial trouble. It has now been modified into a multi-purpose financial rescue tool.

Its estimated $600 billion in available funds will be used to make the new loans to Greece. But it can also now be made available to lend governments money to shore up weak banks — a major concern in Europe — and to intervene in bond markets as needed to keep down the interest rates paid by vulnerable nations. That gets at one of the root causes of the crisis: high borrowing costs forced on countries by private investors who have lost faith that they will be repaid. By increasing the demand for the bonds of countries such as Spain — fighting to keep its access to private markets — the fund can keep interest rates low and guard against speculation.

In addition, a major program is being launched to pump new investment into Greece, billed as a “European Marshall Plan” intended to reinvigorate the Greek economy just as U.S. funding helped jump-start Europe after World War II.

At the close of the session, with new funding for his country now secure, Papandreou said the people of Greece are committed to following through on a program meant to reorder their economy.

“The only thing we are asking for is the right to make major changes, profound, deep changes, in our country,” he said. “We are committed to make our country a viable country. One of growth and job creation.”

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