The bright eclipsing and bursting low-mass X-ray binary EXO 0748-676 has been observed at several occasions by XMM-Newton during the initial calibration and performance verification (CAL/PV) phase. We present here the results obtained from observations with the EPIC cameras. Apart from several type-I X-ray bursts, the source shows a high degree of variability with the presence of soft flares. The wide energy coverage and high sensitivity of XMM-Newton allows for the first time a detailed description of the spectral variability. The source is found to be the superposition of a central (~2 10^8 cm) Comptonized emission, most probably a corona surrounding the inner edge of an accretion disk, associated with a more extended (~3 10^10 cm) thermal halo at a typical temperature of ~0.6 keV with an indication of non-solar abundances. Most of the variations of the source can be accounted for by a variable absorption affecting only the central comptonized component and reaching up to NH ~1.3 10^23 cm^{-2}. The characteristics of the surrounding halo are found compatible with an irradiated atmosphere of an accretion disc which intercepts the central emission due to the system high inclination.
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