Doubts remain on new Eurozone rescue plan

European leaders clinched a new multibillion-dollar financial plan to head off a eurozone meltdown, exacting major concessions from Germany, the key advocate of tougher austerity. Meeting in Brussels the leaders agreed to aid troubled banks directly rather than through shaky governments through a $149 billion package, raising the possibility the resulting debt mountain could be more attractive to investors when backed by EU support. Aside from Western investors, China and the oil-rich Gulf Cooperation Council Arab states are the most likely outsiders targeted as potential funders for the new plan, which promises to convert some of Europe's junk and tainted bonds into sellable investment with the European Union behind it. Critics said the rescue plan still didn't go far enough and would increase debt risks for countries like Germany which so far have remained largely unscathed by the crisis in Greece and southern Europe. However, analysts said the deal was likely to push EU members closer to a fiscal union sometime in the near future. The German concession was a diplomatic victory for France and southern European states Italy, Portugal and Spain which began rebelling against the austerity plans after seeing its effect on Greece. The ouster of Nicolas Sarkozy from the French presidency and the arrival of his socialist successor Francois Hollande in May hastened a slow demise of German Chancellor Angela Merkel's austerity manifesto and produced a groundswell of support for a growth-oriented rescue of the 17-nation eurozone's most troubled economies. The plan means EU leaders will use the eurozone bailout fund to directly support struggling banks instead of lending to governments and adding to their debt liabilities. A joint banking supervisory body will be created to oversee the rescue operation in the eurozone, officials said. Spain and Italy, groaning under escalating borrowing costs, got French backing to pressure Germany to allow the bailout fund to start picking government debt off the markets effective July 9. Early reaction saw markets soaring in euro-dollar transactions. It wasn't clear, however, what Europe would do to address the southern Europeans' urgent demands for early cash injections into their economies. The new agreement aims to replace the eurozone's existing bailout fund with a new fund to be called the European Stability Mechanism. EU Council President Herman Van Rompuy said the deal would aim to break a vicious circle between banks and national governments. However, the dealt also exposes European taxpayers to even bigger risks than those in play since the Greek debt crisis began last year. French newspaper Le Monde said the final outcome was "a compromise ... ripped out with forceps" and required tough haggling and direct French pressure in support of Portugal and Spain. German newspaper Die Welt said Merkel had come "under massive pressure" during negotiations for the deal. "As in (soccer), so at the euro summit: Italy has won out on key points in a long night of negotiations in Brussels, Chancellor Merkel gave way," German news magazine Der Spiegel said. British Prime Minister David Cameron backed the deal but indicated Britain would continue to resist giving more budgetary powers to Europe, adding he shared "people's concerns about Brussels getting too much power."