(CNN) -- European leaders have thrashed out a deal they hope will resolve the problems that threaten the stability of world markets and the very existence of the euro currency.
Marathon negotiations at EU headquarters in Brussels resulted in a deal that will slash Greek debt, recapitalize European banks and more than double the EU bailout fund's resources to handle future sovereign defaults.
While questions still remain over whether Greece will be able to meet their debt obligations, the fact that leaders were able to finally put concrete numbers to what had previously been little more than vague promises bolstered financial markets.
"It's great news that we've got an agreement," said Deutsche Bank economist Gilles Moec. "When Europe puts its heads together, they do actually begin to cooperate."
What is the deal?
The three-pronged plan aims to resolve the debt crisis in Greece, return stability to Europe's banking sector and expand the resources of a bailout fund that is seen as woefully inadequate to handle a potential Italian or Spanish sovereign default.
The first and most crucial aspect of the plan was getting Greek bondholders -- basically, private banks that loaned Greece money -- to voluntarily agree to write down or revalue Greek debt by a staggering 50%, as opposed to the 21% that was originally agreed during bailout talks in July.
The 50% "haircut" or write down means Greece owes its debt holders €100 billion less, reducing its debt burden by 2020 to 120% of economic output, a more manageable debt figure closer to the ratio of Italy.
The deal also strengthens the European banking system by forcing banks to raise money in order to protect themselves in the event countries like Greece or Portugal fail to repay their debt.
Banks must increase core capital levels to 9% in order to create a buffer against potential losses, according to the deal -- meaning banks must raise a total of €106 billion by June 2012 to meet the new targets.
Leaders also agreed to boost the resources of the European Financial Stability Fund to €1 trillion, up from its current lending capacity of €440 billion, without committing any additional European taxpayer money to the bailout fund.
While the current size of the EFSF was seen as big enough to handle a Greek default, leaders made the move to more than double the bailout fund's capacity in order to at least partially fend off worries about faltering Italy and its €2.5 trillion debt burden.
The deal will be supplemented by the creation of new investment mechanisms with the International Monetary Fund worth up to €100 billion -- something China has already expressed interest in backing.
Who wins in this deal?
The biggest winner is Greece, whose crippling debt load has now in principle been cut in half in the deal that prime minister George Papandreou says marks "a new day for Europe and for Greece."
While austerity measures will still make things tough for the Greek people, the new plan has set the country on a sustainable debt trajectory, according to economist Gilles Moec.
"At least the deal gives Greece a fighting chance," said Moec. "It's not great, it would be much better if we could get the debt below 100% ... but it's doable."
The deal is also a victory for Germany, which had been the driving factor behind forcing the banks to take a bigger "haircut" or write down on Greek debt, according to CNN's Fred Pleitgen.
"If you look at the vote in German parliament outlining what Germany were going to ask for at the summit, and then you see the results of the summit, it's basically identical," he said.
German Chancellor Angela Merkel said the deal represented a victory for Europe as a whole.
"Everybody was aware that the whole world was looking at this meeting," she said. "I think that tonight we Europeans have taken the right measures."
What comes next?
Questions still remain about whether the latest deal does much more than buy the eurozone some much-needed time.
The problem of what to do in the event of an Italian default has still not been answered, according to CNN's Nina dos Santos.
"The Italian outstanding debt stands at about $2.5 trillion dollars, which really dwarfs the size of anything else we're talking about," she said.
Prime Minister Silvio Berlusconi could do little more at the summit than promise his European counterparts that Italy would tackle its mounting debt -- meanwhile in Rome, politicians traded punches in parliament over proposed austerity measures that threaten to bring down Berlusconi's government.
Emerging markets like China and Brazil could now play a crucial role in filling up the bailout fund through the new IMF mechanism, according to dos Santos.
"Emerging markets have long wanted a bigger seat at the IMF table, and this may give them an opportunity to do so," she said.
In the end, the European debt crisis can only end with sustained economic growth, says CNN's Andrew Stevens.
"The core problem remains the disparity between the economic performance and economic outlook for each country -- Greece is going to continue to contract for some time, while Germany is a very efficient trading, manufacturing, huge economy," he said.
"It's very difficult to see, from this at least, how Europe's going to start singing off the same sheet."
CNN's Andrew Stevens, Nina dos Santos, Fred Pleitgen and CNNMoney's Ben Rooney contributed to this report.