At the start of yesterday’s marathon summit meeting, expectations of a deal being struck were slim. However, after hours of intensive talks, much progress has been registered. To put it in a nutshell, private banks have agreed to take a much higher hit in writing off Greek debts, which should see the country’s sovereign debt down to 120% of GDP by 2020 – the same as Italy’s at present.

In addition, European leaders agreed to increase the European Financial Stability Facility to 1 trillion euros, as a safeguard against Spain and Italy being sucked into the mire. Bank recapitalisation had been agreed on at an earlier stage, more than likely during last Sunday’s inconclusive summit.

Banks are now required to raise about €106bn in new capital by June 2012, and governments may have to step in despite the unpopularity of further bank bailouts.

The hope is that this measure would help insulate against losses resulting from any government defaults and protect larger economies – like Italy and Spain – from the market turmoil.

Shares in European markets rose sharply on news of the deal and the framework of the new fund is set to be put in place in November. The consensus seems to be that Europe has bought a great chunk of much-needed breathing space with the deal.

On the other hand, it does also show that the EU was indecisive over the past two years and could have avoided this whole mess had the issue been treated with the seriousness it deserved from the off.

Meanwhile, the deal was tied in with a pledge from the Berlusconi government to balance Italy’s budget and finally implement concrete changes to bring down its staggering €1.9tn deficit.

What is certain, is that this agreement, agree with it or not, was the signal that the markets were looking for. Stocks have soared and trading went on at quite a furious pace yesterday, as market confidence was restored. Whether that trend will continue is debatable, however it is intrinsically linked to efforts which individual nations will make to come back onside.

Former UK Prime Minister John Major also wrote an interesting piece in yesterday’s edition of the influential Financial Times newspaper and said the current troubles vindicated his government’s decision to opt out of the euro. He argued (as we have) that the euro, as implemented, was fundamentally flawed. When it was created, governments assumed that southern economies in particular would converge with northern ones. Obviously this has not happened, and not only, many southern countries allowed their debts to balloon out of control. One also has to question just how a country like Greece was allowed to join the EU. Certainly, Mr Sarkozy’s explanation of “how can we deny the country that gave us Plato”, was brazen, short-sighted and irresponsible.

Now, we are all paying the consequences for the lack of observance of the Maastricht Treaty of 1995. Hopefully, as alluded to by EU President Herman Van Rompuy, the EU will implement small treaty changes to give clout to the relevant Commission office to monitor and implement whatever measures it deems necessary to ensure that ‘rogue’ economies are not allowed to spiral out of control again. Will all this be enough? We will know after Christmas, one suspects.