Fiscal compact backed by 25 EU countries

Twenty-five European Union countries agreed to sign a fiscal compact to enforce budget discipline at yesterday's summit in Brussels, with only the Czech Republic and the United Kingdom staying on the sidelines.

The treaty binds signatories to strict limits on budget deficits, and obliges them to insert a balanced budget rule into national legislation or face a fine of up to 0.1 per cent of gross domestic product.

The Czech Republic decided to stay outside the accord for now because of "constitutional reasons", according to French president Nicolas Sarkozy. It is thought that the eurosceptic Czech president Vaclav Klaus would be unlikely to sign the deal. But prime minister Petr Necas left the door open to join in the future. He said: "I could not express my approval of this treaty but I consider it was extremely important that a consensus was reached on article 15 that it will be possible to opt in and to accede to this treaty without any requirement for negotiations. So this treaty remains open for future accession."

Poland did agree to take part after reaching a compromise on the attendance of countries that do not use the single currency at eurozone summits. The final text allows them to attend at least once a year.

Meanwhile British prime minister David Cameron, who set out his opposition to the treaty in December, reaffirmed his stance but did back down from a threat to block the use of EU institutions to police the treaty. In the British parliament today Cameron defended his position: "The new intergovernmental agreement is absolutely explicit and clear that it cannot encroach on the competencies of the EU and they must not take measures that in any way undermine the EU single market." But opposition Labour party leader Ed Milband said Cameron had reversed his position, and that "with this prime minister a veto is not for life, it's just for Christmas".

Welcoming the agreement, European Council president Herman Van Rompuy said it was "quite an achievement" to reach a deal between 25 countries. And European Central Bank chief Mario Draghi said it would "certainly strengthen confidence in the euro area".

Any fines collected from eurozone countries that break the rules of the treaty will be added to the EU's new bail-out fund, the €500bn European Stability Mechanism, which comes into force in July and will only be accessible by signatories of the accord. If non-eurozone countries are fined, the money will go into the general EU budget.

At the summit, all countries except Sweden endorsed a strategy to boost jobs and growth partly by reallocating EU structural funds and obliging member states to present a plan to increase employment.

Unemployment in the eurozone rose in December for the eighth successive month, up by 20,000 to 16.469 million – although the jobless rate was static at 10.4 per cent, the highest level since the euro was introduced, Eurostat revealed today. Unemployment hit 22.9 per cent in Spain and 19.2 per cent in Greece. Youth unemployment in those countries was 48.7 per cent and 47.2 per cent respectively. But in Germany, joblessness dropped to its lowest level since reunification at 6.7 per cent.

The centre-right European People's Party in the European Parliament welcomed the outcome of the summit but called on the council to go further. "Now that we have laid the groundwork for fiscal consolidation, we have to complete the job with fiscal convergence, then social convergence," said the group's chairman Joseph Daul. "Europeans must be subject to comparable rules in order for them to show solidarity, without ulterior motives."

But Hans Swoboda, leader of the Socialists and Democrats, said the fiscal compact was divisive and it was "unacceptable" that Sweden was allowed to opt out of the growth initiative. "Finally there has been recognition of the need to deal with the real problems facing European citizens: the lack of growth and the high unemployment all over Europe," he said. "Yet this start is extremely weak." He said added that it was wrong for austerity to be enshrined in a treaty but growth and job creation in a "mere statement".

European leaders had displayed a "lack of imagination" according to Dany Cohn-Bendit, co-president of Greens in the European Parliament. "The two month sideshow surrounding the new fiscal compact has lost us more precious time and we have not moved any closer to resolving the euro crisis. It is time for the parliament to take the lead and give Europe's citizens some hope," he said. And co-president Rebecca Harms warned that the EU was "digging itself deeper into an economic hole" with its preoccupation with fiscal contraction.

Meanwhile the European United Left/Nordic Green Left claimed in a statement that the treaty represented "the anti-democratic institutionalisation of austerity". The European Trade Union Confederation was also critical. General secretary Bernadette Ségol said the fiscal compact would not reassure the "millions of unemployed, poor or precarious workers in Europe who are waiting for decisive support from EU institutions", and warned that austerity was "killing growth".

Sony Kapoor, managing director of the economic think-tank Re-Define, said the summit "like several other before it, failed to make any dent in the euro crisis". The growth strategy was "too vague", he said, and austerity had so far failed to reduce indebtedness or increase economic sustainability.