The deal would focus on providing funding across three pillars: creating reforms to help businesses rebound from the pandemic, rolling out new measures to reform economies over the long haul, and investing to help protect from "future crises." It would provide hundreds of billions of dollars in grants and loans to member states.
The agreement came after days of deadlock and fractious talks that were described as some of the most bitterly divided in years.
"We did it! Europe is strong. Europe is united," European Council President Charles Michel said at a press conference Tuesday. "This is a good deal, this is a strong deal, and most importantly, this is the right deal for Europe right now."
Michel described the occasion as the first time that members of the European Union were "jointly enforcing our economies against the crisis."
The commission also agreed to a core budget of 1.1 trillion euro (nearly $1.3 trillion) from 2021-2027.
Commenting on the deal, French President Emmanuel Macron hailed the agreement as a "historic day for Europe," while Belgian Prime Minister Sophie Wilmes said that "the European Union has never before decided to invest so ambitiously in the future."
There had been bitter rows over some of the terms of the deal during the last few days. The agreement came just hours after Michel had presented a new proposal to political leaders on Monday.
The European Union is battling a savage recession triggered by the pandemic, and the hardest-hit countries such as Italy and Spain urgently need fresh economic relief worth hundreds of billions of dollars.
Before Tuesday, any agreement had been thwarted by deep divisions over the overall size of the recovery fund, how much assistance should be given as grants or loans, and the conditions that should be attached.
The European Commission said earlier this month that it expects the EU economy to shrink 8.3% in 2020, considerably worse than the 7.4% slump predicted two months ago.
The meeting of the EU top brass is the first major in-person gathering of world leaders since the pandemic started.
-- This is a developing story and will be updated.
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