(CNN) -- European leaders agreed on Thursday to provide a second bailout package for Greece and drastically expand rescue funds to prevent financial crisis spreading through the eurozone.
European Union president Herman Van Rompuy said the rescue deal would be financed by both the EU and the International Monetary Fund.
European governments and the IMF will contribute a total of 109 billion euros. The private sector's share will amount to 49.6 billion euros.
The deal was reached following an emergency summit of the 17 eurozone nations in Brussels.
The plan is believed to have been thrashed out at a seven-hour meeting on Wednesday between French President Nicolas Sarkozy and German Chancellor Angela Merkel, who buried sharp differences about involving the private sector in the bailout.
According to a draft proposal, obtained by several media organizations earlier on Thursday, the European Union will provide additional loans with longer pay back periods "to decisively improve the debt sustainability and refinancing profile of Greece."
Unless the eurozone finds a way to bring Greece back from the brink of defaulting on part of its $500 billion debts, it is feared that other countries exposed to the debt will begin to experience problems.
Weaker economies such as Italy and Spain -- seen as too big to bail out -- could falter, tearing apart the eurozone, and hurting other nations exposed to the debt take.
Under the draft proposals, loans made by the European Financial Stability Fund, funded by bonds backed by EU members, will now mature in 15 years instead of the current seven-and-a-half. The loans will be available to Ireland and Portugal, which have already been bailed out.
Interest rates will be as low as 3.5%, it said.
The draft dropped earlier plans for a bank tax to raise bailout funds, but revived German calls for private sector involvement -- a move that could risk a Greek default.
The eurozone will use its expanded crisis funds as a short-term guarantee to Greek bonds to prevent wider collapse in the event of a partial debt default in order to prevent wider collapse, diplomats told Agence France-Presse earlier on Thursday.
The euro rose sharply and U.S. and European markets were broadly up following reported details of the draft.
"If this is correct it all looks pretty sensible at first glance," said Gary Jenkins, head of fixed income research with Evolution Securities.
Greece's government is estimated to need more than $200 billion to in addition to a $157 billion rescue package agreed last year to sustain it over the next few years.
EU governments have been at loggerheads about what shape the bailout will take, with some leaders insisting banks and private sector investors should take some of the burden.
Greece has been forced to impose harsh austerity measures, provoking violent scenes of protest, in an attempt to cut its debts. Taxes have been raised and public sector jobs cut. It is also selling off numerous assets.
CNNMoney's Ben Rooney contributed to this story.