After tough all-night bargaining, European leaders appeared to salvage what had seemed to be a summit teetering toward failure by agreeing early Friday to use the continent's bailout fund to funnel money directly to struggling banks, and in the longer term to the idea of a tighter union.

The bank decision at overnight meetings in Brussels was aimed at helping Spain, which sought a €100 billion rescue to help its troubled banks and wound up facing rising borrowing costs for the government.

European Council President Herman Van Rompuy called it a "breakthrough that banks can be recapitalized directly."

In addition, the leaders agreed that EU countries that were following budget rules could apply for bailouts that would not come with the stringent conditions that have accompanied previous EU bailouts — a recognition, said Italian Premier Mario Monti, who pushed for the deal, of the work such countries were already doing in reforming their budgets.