After marathon talks that wrapped up, leaders had achieved a "very, very important result ... because we have learned from our mistakes and from the past," said the chancellor.
Merkel and Sarkozy were dealt an early blow in Brussels when British Prime Minister David Cameron blocked attempts to change the European Union treaty to force members to shore up their budgets.
“I can confirm that Britain will not take part in any treaty changes,” an EU diplomat told reporters early Friday morning. Three other member states – Hungary, Sweden and the Czech Republic – also joined Britain in effectively scuppering the option of a treaty change.
This means that the remaining EU members – the 17 countries that use the euro plus Bulgaria, Denmark, Lithuania, Latvia, Poland and Romania – will attempt to sign a new treaty that obliges them to submit to stricter fiscal discipline.
“We will create a new fiscal union that is also a stability union,” Merkel said. It would
include limiting state debt and automatic sanctions for those that break the rules.
EU President Herman Van Rompuy said that a new agreement would be quicker to implement than trying to adjust the existing treaty. “Speed is necessary in to order to increase credibility,” Van Rompuy said.
The head of the European Central Bank, Mario Draghi, also hailed the result as a "very good outcome" for the euro area following the pivotal summit.
"It's going to be the basis for a fiscal compact ... for much more discipline in economic policy and it's certainly going to be helpful in the present situation," Draghi told reporters on leaving the summit.
But legal experts warned that the new "17 plus 6" fiscal union could run into difficulties, since it must not contradict any rules set by the existing EU contracts.
Cameron questioned whether the new union would be allowed to use EU institutions. “The institutions of the European Union belong to the European Union, the 27,” he said.