Czech Prime Minister Petr Necas shakes hands with German Chancellor Angela Merkel, as EU leaders reach an agreement to solve Europe's debt crisis.

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 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 agreed to voluntarilay write down the value of Greek bonds by 50%, which translates into €100EU 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 insure 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 government heads also agreed to raise capital requirements