After months of ever-increasing turmoil, the European Union has decided to set up a massive economic defence mechanism amounting to half a trillion euros to protect weaker eurozone nations from market speculation.

EU finance ministers meeting in Brussels spent 12 hours on Sunday night (9 May) coming to an agreement to set up a multi-pronged "European Financial Stabilisation mechanism" after contagion from Greece's debt crisis threatened to infect countries such as Spain and Portugal. Its total volume will be up to €500 billion, with a further €220 available from the IMF.

At the same time, the European Central Bank announced plans to step in and buy government bonds, a process of quantitative easing that mirrors similar earlier actions in the US and UK.

"We now see herd behaviours in the markets that are really pack behaviours, wolf pack behaviours," Swedish finance minister Anders Borg said Sunday while explaining the need for the new mechanism. If unchecked, "they will tear the weaker countries apart."

As part of the agreement, the EU's already-existing 'balance of payments facility,' under which the commission can borrow money on capital markets to then lend on to non-eurozone states, has now been replicated for euro area countries as well.

The new facility for euro area states has a ceiling of €60 billion. It is to be set up under Article 122 of the EU treaties which foresees financial support for member states in difficulties caused by exceptional circumstances.

"We are facing such exceptional circumstance today and the mechanism will stay in place as long as needed to safeguard financial stability," the finance ministers said in their final conclusions.

The scheme also allows for the provision of up to €440 billion in government-backed loan guarantees and bilateral loans on an intergovernmental basis.

Following German demands, the action will take place under a "Special Purpose Vehicle," and will be "guaranteed on a pro rata basis by participating member states in a co-ordinated manner and that will expire after three years, respecting their national constitutional requirements, up to a volume of €440 billion."

The IMF has agreed to provide "at least half as much as the EU contribution," or €220 billion, under the scheme.

Non-eurozone countries Sweden and Poland have indicated they wish to take part, while French minister Christine Lagarde warned there was still a risk that national parliaments could vote down the mechanism designed to the defend the euro currency.

The marathon talks saw Germany's wheelchair-bound finance minister Wolfgang Schaeuble admitted to hospital after an apparent bad reaction to new medicine, while the country's chancellor, Angela Merkel, was urged by US President Barack Obama in a telephone call to take "resolute steps to build confidence in markets."

In a further move to reassure investors, Spain and Portugal have indicated they are ready to take "significant additional consolidation measures in 2010 and 2011." These will be presented to an EU finance ministers gathering on 18 May.

"We shall defend the euro whatever it takes," EU economy commissioner Olli Rehn told journalists after Sunday's meeting.

Markets in Asia reacted positively to the news of the huge European effort which also includes action by the European Central Bank.

In a dramatic turnaround from its previous position, the bank said early on Monday morning that it is prepared to buy government bonds and private assets in a bid to ease market tensions. The ECB has previously said it opposed such a measure.

Although the remarkable u-turn is a further sign of Europe's determination to protect its economy, analysts said it also now places a huge question mark over the central bank's independence.