Finally, Europe has a deal

German Chancellor Angela Merkel and other European leaders met in Brussels to hammer out a debt crisis deal.

NEW YORK (CNNMoney) -- European Union leaders announced an agreement early Thursday on debt crisis measures, including a hard-fought deal with private sector investors to take a 50% loss on Greek bonds.

The agreement came at the end of marathon talks to finalize the details of a comprehensive policy response to the government debt and banking problems threatening the stability of the euro currency .and global economy 

The response aims to resolve three related problems: the debt crisis in Greece, instability in the banking sector and a sorely outgunned bailout fund.Under the new plan, Greek bondholders voluntarily agreed towrite down the value of Greek bonds by 50%, which translates into €100 billion and will reduce the nation's debt load to 120% of economic output from 150%.The response aims to resolve three related problems: the debt crisis in Greece, instability in the banking sector and a sorely outgunned bailout fund.

Charles Dallara, director of the Institute of International Finance, which represented the private sector in the talks, welcomed the agreement. In a statement, he said private investors agreed to the 50% discount "with the support of a 30 billion euro" official private sector involvement package.

The agreement also calls for the creation of a new financing program with the International Monetary Fund worth up to €100 billion, according to an official statement.

Stronger bailout fund: The leaders agreed on two ways to increase the firepower of the EU bailout fund, known as the European Financial Stability Facility. The methods will each leverage the fund by four or five fold, the statement said, boosting its resources to about €1 trillion.

The fund will be used to partially ensure new issues of government bonds. In addition, it will be supplemented by the creation of one or more special investment vehicles, which will be open to private sector players such as sovereign wealth funds.

China has already expressed interest in backing the special investment mechanism. The possibility that China could back the the rescue effort helped lift U.S. stock prices late Wednesday.

Bigger bank reserves: The EU heads of state also agreed to raise capital requirements for banks vulnerable to losses on euro-area government bonds.

"The overarching goal of the exercise is to foster confidence in the European banking sector," said European Council president Herman Van Rompuy