Traditionally, liquid ethanol is known to enhance the permeability of lipid membranes and causes vesicle aggregation and fusion. However, how the amphiphilic ethanol molecules perturb the lipid vesicles to facilitate their aggregation or fusion has not been addressed at any level of molecular simulations. Herein, not only have we developed a coarse-grained (CG) model for liquid ethanol, its aqueous mixture, and hydrated lipid membranes for molecular dynamics (MD) simulations, but also utilized it to delineate the aggregation and fusion of lipid vesicles using CG-MD simulations with multimillion particles. We have systematically parametrized the force-field for pure ethanol and its interactions with hydrated POPC and POPE model lipid membranes. In this process, we have successfully reproduced the bulk ethanol structure and concentration-dependent density of aqueous ethanol. To quantify the interaction of ethanol with lipid membranes, we have reproduced the transfer free energy of the ethanol molecule across the hydrated bilayers, and the concentration-dependent distribution of ethanol molecules across the lipid bilayers. After having acceptable force-field parameters for ethanol-membrane interactions, we have checked the effect of ethanol toward the vesicles comprising POPC lipids. We observe a rapid increase in the size of the POPC lipid vesicles with increasing amounts of ethanol up to 30 mol %. We unambiguously observe swelling and decrease in the thickness of the POPC vesicles with increasing amounts of ethanol up to 30 mol %, beyond which the vesicles begin to lose their integrity and rupture at higher mol % of ethanol. The fusion study of two vesicles demonstrates that fused vesicles can be obtained from 20 to 30 mol % of ethanol provided that they are brought closer than a critical distance at a particular mol %. The multivesicle simulations show that along with the increase in the sizes of vesicles the propensity of vesicle aggregation increases as the mol % of ethanol increases.