European leaders have hammered out a controversial deal that could see the International Monetary Fund involved in any Greek bailout.

The proposed IMF involvement is a victory for the German chancellor Angela Merkel who had opposed any direct financial aid from her own government.

However, the agreement has sparked tensions with the president of the powerful European Central Bank. He warns that even talk of an IMF rescue is a bad precedent for the European Union.

Throughout the Greek crisis the German chancellor Angela Merkel has argued that German taxpayers should not be penalised for the mismanagement and incompetence of the Greek Government.

Today she won the battle against France, which had been pushing for an independently funded EU solution.

After hammering out the deal in Brussels, Ms Merkel assured the cynics that the IMF would only be engaged if all else fails.

“I suggest that we envisage a combination of IMF and bilateral help if the situation arises where Greece can’t obtain any money itself,” she said.

“I think it’s important that we focus on this as a last resort and we can then consider things further. But I want us to learn from this because, in actual fact, we don’t want to get into such a situation.”

Despite today’s agreement, the Greek prime minister George Papandreou maintains the problem can be solved without any outside help, and that his unpopular austerity measures will rein in the nation’s $440 billion debt.

“Greece will move ahead in a positive and in the right direction. Of course today the challenge is a European one,” he said.

If activated, the IMF assistance could provide an immediate injection of $33 billion to assist Greece in meeting the interest on its sovereign debt repayments.

The Swedish prime minister Fredrik Reinfeldt says the EU should take any help it can get from the IMF.

“They have the resources, the knowledge, the experience which I think is needed because if you don’t basically in the structures of the economy solve your problems they will come back,” he said.

“That has to be done by Greece themselves. And that, in my experience, is also what the IMF can provide. And if that’s the German position, it has support from Sweden.”

However, Angela Merkel’s victory has angered the president of the European Central Bank, Jean-Claude Trichet. The world’s second-most powerful central banker says it is a bad idea and that the EU needs to resolve the crisis on its own.

“Everything that means the members of the eurozone are giving away their responsibility is bad. If the IMF or any other organisation takes responsibility instead of the eurogroup or the governments it’s very, very bad,” he said.

Even so, the deal provided a shot in the arm for European shares which hit an 18-month closing high on the news.

While the euro fell to a new 10-month low against the US dollar, European traders like Oliver Roth are relieved in the short term.

“The stock exchange doesn’t [care] right now if it’s the IMF or it’s the membership, the members of the EU who are the active part of it [a bailout],” he said.

“For us it is important for the sake of the currency that Greece has to be disciplined for the budget and that they’re saving money to be a part of the rescue.”

But in the immediate case of Greece, the outlook remains bleak according to the head of the world’s biggest bond fund Pimco.

This morning Bill Gross was asked about his Greek investment strategy and he says it is right to be scared.

“Well we stay away from it. You know there are simply much more attractive alternatives elsewhere that stand a better chance of solvency, so to speak, and of getting your money back.”