European leaders have signed a new fiscal treaty aimed at preventing the 17 eurozone countries from accruing the crippling budget deficits that have led to the currency union's current debt crisis.
Signed in Brussels on Friday, the accord, known as the "The Treaty for Stability, Co-ordination and Governance", paves the way towards closer political and economic integration in the eurozone.
"It will bring us, as it were, the economic and monetary union that is finally walking on two legs," said Herman Van Rompuy, the president of the European Council, who oversaw the drafting of the treaty.
Of the bloc's 27 members, only the United Kingdom and the Czech Republic decided not to sign the agreement.
The treaty is "a strong signal that we are drawing lessons from the crisis and that we are focusing on the future of a politically united Europe", said German Chancellor Angela Merkel, one of the main architects of the pact.
Lack of consensus
The fact that two EU states chose not to approve the document forced the signatories to set up the new rules as a separate treaty, rather than integrating them into EU law.
The signatories will therefore not be able to use the EU's existing institutions, such as the European Commission, to oversee the implementation of the treaty, as is normally the case for EU-wide measures.
Before the rules can be enforced, they need to be ratified by the individual member governments, a process that could prove difficult in some countries, as two years of painful austerity have left citizens of some countries weary of Europe-wide fiscal measures.
The tighter spending rules - which include a prohibition of deficits of more than 0.5 per cent of total economic output - may limit governments' room to manoeuvre in their response to tough economic times.
The new deficit limits do make exceptions, including for cases of severe recession and certain unexpected economic circumstances.
"You now all have to convince your parliaments and voters that this treaty is an important step to bring the euro durably back into safe waters. I am most confident you will succeed," Van Rompuy told the heads of state and government.
"The treaty is short and sharp. Its benefits are clear. And above all, you are all gifted politicians, otherwise you would not be here."
The treaty will take effect once 12 of the 25 states have ratified the pact. Ireland has already announced plans for a referendum before the treaty can apply there.
If states do not ratify the treaty, they will be blocked from bailout funding from a related rescue firewall being set up as of July this year.