European leaders agreed a further bail-out for Greece totalling €109bn, a third of which will come in the form of debt swaps or rollovers by private sector bondholders.

The agreement to involve private sector creditors is a political victory for Angela Merkel, Germany’s chancellor, but one that would almost certainly lead to the first default on eurozone bonds since the creation of the single currency.

At a momentous summit in Brussels anxiously awaited by investors, eurozone heads of government quickly reached agreement to lower interest rates on rescue loans to all three countries in bail-out programmes. Greece, Ireland and Portugal would pay about 3.5 per cent – 100-200 basis points lower than at present – officials said. They also agreed to extend the repayment schedules from seven years to at least 15 years.