European Union leaders have signed off on new legislation aimed at forcing member states to get their fiscal houses in order. The treaty signals closer economic integration in the 17-member eurozone.
The German-pushed pact, which seeks to usher in a new era of political and economic integration in the eurozone, aims to enshrine in individual national constitutions a so-called "debt-brake" or "golden rule" limiting structural deficits to 0.5 percent of national output.
EU countries with debts well below 60 percent of gross domestic product will be allowed structural deficits of up to 1.0 percent of GDP.
The Treaty for Stability, Coordination and Governance was inked by 25 of the 27 EU member states, with Britain and the Czech Republic declining participation.
The treaty will take effect once it has been ratified by 12 of the 25 signatory states. Ireland has already said it would hold a referendum on the matter. States that do not ratify the deal will not be entitled to bailout funds that are part of an EU debt "firewall" that is due to be put in place by July.
Signatory states that fail to adhere to the treaty risk being taken to the European Court of Justice. "Automatic consequences" such as fines also await countries that breach the treaty guidelines.
EU Council President Herman Van Rompuy said the pact "helps prevent a repetition of the sovereign debt crisis." He added that with the signing of the treaty, which the European economic and monetary union originally envisaged over 10 years ago, "is finally walking on two legs."
Speaking just prior to the signing ceremony, German Chancellor Angela Merkel said the pact was a "milestone" for the European Union. "This is a strong signal that we have taken note of the lessons of the crisis, that we have understood the signals and that we are set on a politically united future for Europe."
Merkel had earlier said that European politicians had little choice but to sign the legislation into law if they hoped to create the conditions for sustained growth.
"I think we have to collectively work on the improvement of our competitiveness worldwide," Merkel said. "Only if Europe accomplishes that will we really have a future to reduce our budget deficits, and at the same time guarantee prosperity and jobs for the people in Europe."
European finance ministers met ahead of the summit to discuss Greece's progress in implementing a series of austerity measures in return for the 130-billion-euro ($173 billion) bailout agreed by EU leaders last week.
The head of the group of nations that use the euro, Luxembourg Prime Minister Jean-Claude Juncker, told reporters after the finance ministers' meeting that Greece was well on its way to being granted the first tranche of that bailout. The funds are to be released after Athens passes the last remaining items in its austerity package and a write-down of bad Greek debt by private lenders is formally agreed.
dfm/ncy (Reuters, AFP, dpa)