NEW YORK (MarketWatch) — European financial leaders on Sunday approved an 85-billion-euro, or $112.53 billion, aid package for debt-crisis-stricken Ireland.

The agreement was announced at an European Union finance ministers’ meeting in Brussels.

The financial package includes 10 billion euros for immediate recapitalization measures, 25 billion euros on a contingency basis for banking system supports and 50 billion euros covering budget-financing needs, according to a statement from the euro-zone finance ministers.

“This program is absolutely essential for the country,” said Irish Prime Minister Brian Cowen at a press conference in Dublin. “We have carefully considered all available policy options. (It’s) the best available deal for Ireland.”

Cowen added that the bailout doesn’t involve any change in Ireland’s ultra-low corporate tax rate and that repayments will be at a 5.8% interest rate. The funding will be available to Ireland at a cheaper interest rate than what is available on the international markets, Cowen added.

“It is a forceful response to vulnerabilities in the banking system imposing a heavy cost on the budget and, in turn, hurting the prospects for growth that Ireland needs for an enduring solution to the crisis,” Olli Rehn, European Union Commissioner, and Dominique Strauss-Kahn, managing director of the International Monetary Fund, said in a joint statement. “Swift and sustained implementation of this program will create a smaller banking sector that is robust and well capitalized, and able to serve the needs of Ireland’s economy.”

Ireland to Accept EU, IMF Bailout

The Irish government on Nov. 22 requested help from European Union and the International Monetary Fund after weeks of insisting that it didn’t need a bailout.

Its bond yields had continued to rise on Thursday, finding little relief even in the wake of the government’s pledge a day earlier to cut its budget by 15 billion euros, or about $20 billion, over the next four years. See full story on pressure on Irish bonds.

In preparation for the meetings of the finance ministers telephone consultations occurred among Herman Van Rompuy, president of the European Council; José Manuel Barroso, president of the European Commission; Jean-Claude Juncker, president of the Eurogroup; European Central Bank President Jean-Claude Trichet; Angela Merkel, Germany’s chancellor; and Nicolas Sarkozy, France’s president, according to a statement from the European Council.

German proposal

Germany had proposed for months that bondholders be included among those who might bear the burden of a bailout when euro members can’t manage their debts in the future, according to the Wall Street Journal.

But Trichet and Juncker, the Luxembourg premier who heads the group of euro-zone countries, said private-sector creditors would face restructuring on a “case-by-case” basis and not automatically as Germany had proposed, the paper said.

Germany, which had been unhappy that its taxpayers would be subjected to take on a larger burden to bail out countries such as Ireland and Greece, had said its proposal would reduce reckless borrowing by euro-area members because they would face higher borrowing costs if they neglected fiscal discipline, the Journal reported.

Germany’s plan was criticized by some euro-zone governments. They blame its proposal for creating turmoil in the bond markets and pushing up yields of some euro members against increased investor and policy-makers’ concerns that Portugal and possibly Spain may need to seek a bailout in coming months, the paper said.

The new “case-by-case” system wouldn’t affect creditors until mid-2013 and new “collective action clauses” that may smooth restructuring would only be inserted into euro-zone bonds issued from June 2013 and onward, the Journal reported.