Enda Kenny, Ireland's prime minister.Jock Fistick/Bloomberg

The Irish government has won its battle to alleviate the country’s debt burden on the taxpayer in a new deal with the European Union.

The deal was announced at 4am on Friday after a summit of Eurozone leaders in Brussels.

A statement issued by the EU after the meeting stated that the summit had pledged to "examine the situation of the Irish financial sector with the view of further improving the sustainability of the well-performing adjustment programme."

The summit agreed that the EU’s permanent bailout mechanism could be used to directly recapitalize Eurozone banks, a key demand from the Irish and Spanish governments ahead of the crisis meeting.

The statement added that EU leaders also agreed to work towards a tighter economic and monetary union through more centralized budget oversight to protect their single currency from future crises.

Irish Prime Minister Enda Kenny hailed the deal as a major victory for the taxpayers of Ireland.

He also said it signaled a "seismic shift in EU policy."

According to Kenny,  “This deal will allow Ireland to re-engineer its overall debt level, which would reduce the burden on Irish taxpayers.

“What was deemed to be unachievable has now become a reality and that principle has been established, decided and agreed upon by the council and heads of government.

“The new deal means Ireland’s overall debt burden, including the bank debt, can be re-engineered in a way that will give Ireland equal treatment to Spain and any other countries that avail of the new system.

“That means that head of governments' decision will now be referred to the Eurogroup of Eurozone finance ministers for an analysis of how best this might be used in Ireland’s case to re-engineer the debt burden — which is what we set out to do.

“In the case of countries that are going to be involved here, where funding is made available through the EFSF it will later be transferred to the ESM, and that is also the case in reference to Spain.

“The fundamental principle of the ESM providing funding to break the link between sovereign and bank debt has now been agreed by the heads of government.

“It allows in Ireland’s case the opportunity to re-engineer in a number of ways the debt burden on our taxpayers.”

The new deal also represents a major shift in German opinion after their government opposed the use of the European Stability Mechanism (ESM) to directly recapitalize banks.

Kenny’s deputy Prime Minister Eamon Gilmore described the deal as: “A major game-changer which will significantly improve Ireland’s prospects of avoiding a second bailout.”

Gilmore said: “The deal lifts the bank debt burden from Irish taxpayers and improves the chances of a return to the bond markets.”

He also said he believed the deal was retrospective and would be applied to the Irish recapitalization.