REPORTING FROM LONDON -- Leaders from 25 of the European Union's 27 countries signed a new treaty on fiscal discipline Friday in a move they hope will help resolve the region's long-running debt crisis and prevent future such occurrences.
The agreement commits the signatory nations to reining in public spending and running low levels of government debt. Conceived largely in Berlin, the treaty is designed to win back investor confidence in the euro and pare back the debt and deficit loads that have saddled countries such as Greece, Portugal and Italy.
Only Britain and the Czech Republic opted out of the pact, which was signed in Brussels at a summit of EU leaders. Many analysts doubt that the agreement will be enough to convince the markets or that it will be enforced effectively.
The treaty that created the euro single currency in the first place also bound member states to running low government deficits, but many of the Eurozone nations flouted the rule, including Germany and France, the continent's two heavyweights. Still, Herman van Rompuy, the EU president, hailed the pact as the beginning of a new era in prudent stewardship and said it would create the conditions for a desperately needed return to growth, without which financially troubled European nations will have no way of digging themselves out of debt.
"This stronger self-constraint by each and every one of you as regards debts and deficits is important in itself. It helps prevent a repetition of the sovereign debt crisis," Van Rompuy said. "The restoration of confidence in the future of the Eurozone will lead to economic growth and jobs. This is our ultimate objective."
The treaty must now be ratified by the signatory countries' parliaments. In Ireland, the government has announced that the new fiscal pact would be put to a national referendum in the coming weeks.
While EU leaders congratulated one another on the signing of the treaty, they put off discussion at the summit of increasing the size of Europe's bailout fund in order for it to serve as a better firewall against the current debt crisis spreading to large countries such as Spain and Italy.
Many analysts say that a beefed-up fund is necessary to convince investors that Europe will do what it takes to shore up the euro.
-- Henry Chu
Photo: European Union President Herman van Rompuy arrives for a working session during a two-day EU summit in Brussels. Credit: John Thys / AFP/Getty Images