Deal conforms to German prescriptions for a minimalist bailout fund, but falls short of OECD calls for the 'mother of all firewalls'

Europe's 17 single currency governments have agreed to deliver €500bn (£418bn) in bailout funds in the hope of erecting a firewall strong enough to contain the sovereign debt crisis, placate the markets and encourage non-eurozone International Monetary Fund (IMF) members to commit a similar sum to emergency reserves.

But the eurozone finance ministers, meeting in Copenhagen amid calls to erect the "mother of all firewalls", ditched explicit earlier proposals to keep a further €240bn in reserve for the next two years.

The deal agreed conformed to German prescriptions for a minimalist bailout, a recipe the European commission described in advance as inadequate to the challenges confronting the euro.

Ministers endeavoured to impress the bond markets, the Americans and the Chinese, trumpeting the agreement as worth "more than a trillion dollars" in the hope this will press the big IMF donors into doubling the monetary fund's reserves to a similar figure next month.

The French finance minister, François Baroin, said: "We are now in a strong position for discussion on the IMF in April. It is a good signal."

A statement from the eurogroup said: "Altogether, the euro area is mobilising an overall firewall of approximately €800bn – more than $1tn."

But that figure included €100bn in bilateral loans to Greece from EU countries in 2010, as well as €200bn to Ireland, Portugal and Greece from the temporary eurozone bailout fund, which closes next year, although those three programmes will run their course until 2015.

The Copenhagen summit degenerated into acrimony and some chaos when Austria's finance minister, Maria Fekter, upstaged eurozone leaders by announcing the €800bn firewall first. Jean-Claude Juncker, the veteran Luxembourg prime minister who has led the eurogroup for eight years and whose term expires in June, abruptly cancelled a press conference at which he was to unveil the news.

The new money comes in the form of the European stability mechanism (ESM), the permanent eurozone bailout kitty, and embryonic European Monetary Fund, which starts in July. The ESM's launch has already been brought forward, and ministers agreed to speed up the process of paying in capital to get the fund fully operational within two years.

Its lending capacity was capped at €500bn, as has long been planned. "As of mid-2013, the maximum lending volume of ESM will be €500bn. The combined lending ceiling of the ESM and the EFSF [European financial stability facility] will continue to be set at €700bn," the statement said in reference to the three ongoing bailouts from the temporary fund.

That fund totalled €440bn, leaving €240bn still available. A draft statement on Thursday said the spare €240bn would be held in reserve for emergency use, but that clause was dropped yesterday.

The permanent fund's lending capacity hinges on €80bn being paid in five instalments until 2014 to retain a triple-A credit rating, meaning that it could be two years before the fund is operating fully as foreseen. But the parallel operation of the current temporary and the future permanent funds will ensure a lending capacity of €500bn, the ministers said.

Wolfgang Schäuble, Germany's powerful finance minister, is tipped to succeed Juncker in a post that the sovereign debt crisis has turned into one of the most crucial in the EU. But intense wrangling over how to divvy up a quartet of senior financial jobs meant those decisions were postponed.

Friday's agreement represented yet another win in the long-running euro saga for Berlin in dictating the terms of the eurozone's response to the crisis. France and others had argued for a trillion-euro firewall. Germany insisted the permanent fund should not exceed €500bn and on Monday conceded the €200bn of current bailouts could run concurrently.

"The euro area made substantial progress over the past 18 months to address the challenges stemming from the sovereign debt crisis," the ministers declared. "Important improvements were made to improve the governance of the euro area … robust firewalls have been established. This comprehensive strategy has paid off."

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