EU summit: UK and Czechs refuse to join fiscal compact

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Germany's Chancellor Angela Merkel says EU leaders have taken an "important step forward"

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Twenty-five of the EU's 27 member states have agreed to join a fiscal treaty to enforce budget discipline.

The Czech Republic and the UK refused to sign up. UK Prime Minister David Cameron said his government would act if the treaty threatened UK interests.

He still has "legal concerns" about the use of EU institutions in enforcing the fiscal treaty, he said.

The Czechs cited "constitutional reasons" for their refusal, France's President Nicolas Sarkozy said.

Czech President Vaclav Klaus, a Eurosceptic, may be reluctant to sign the treaty, analysts say.

The goal is much closer co-ordination of budget policy across the EU to prevent excessive debts accumulating.

Germany - the eurozone's biggest lender and most powerful economy - was particularly keen to get a binding treaty adopted to enforce budget rules.

The treaty will empower the European Court of Justice to monitor compliance and impose fines on rule-breakers.

The treaty also spells out the enhanced role of the European Commission in scrutinising national budgets.

British PM David Cameron: "We will not be ratifying this treaty and it places no obligation on the UK"

The Czech Republic is not yet in the euro, but like the other new EU member states it is committed to joining.

European Union leaders also discussed ways to stimulate economic growth despite the stringent austerity budgets in many countries - and focused on how to reduce unemployment across the eurozone.

UK concerns

The UK and Denmark are the only states with explicit opt-outs from the euro.

Mr Cameron said "it's good that the new treaty is absolutely explicit and clear that it cannot encroach on the competences of the EU".Q&A: EU summit deal on debt crisisQ&A: EU summit deal on debt crisisQ&A: EU summit deal on debt crisis

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Analysis

Chris MorrisBBC News, Brussels

No-one believes that this treaty on its own will solve anything, and it could face an uncertain future. The Socialist candidate in the French presidential election Francois Hollande has promised to renegotiate it if he wins, and President Nicolas Sarkozy has now confirmed that the treaty will not be ratified in France before the election takes place.

In fact given general agreement on the need for measures to promote growth, some critics have described the fiscal treaty as little more than a distraction. But Germany has pushed hard for its implementation - partly to persuade political opinion in Berlin that there really will be strict rules in place to ensure that another debt crisis can't happen in the future. Only then will Germany consider spending more money to help other countries which are struggling with their debts now. The fear is that if Germany doesn't act, the current crisis will only get worse.

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"They must not take measures that in any way undermine the EU single market," he said, adding: "we'll be watching like a hawk".

He insisted that the treaty would impose "no obligations on the UK".

Mr Cameron used his veto last month to opt out of the treaty, arguing that the UK needed to keep its authority over financial services in the City of London.

The eurozone crisis dominated Monday's summit, with debt-laden Greece still at risk of defaulting.

A general strike in Belgium, paralysing transport, reminded EU leaders of public discontent with austerity as they arrived for the summit.

The talks also concentrated on reducing unemployment, which is averaging 10% across the eurozone, though youth unemployment is often much higher.

There are fears that wide-ranging budget cuts will harm enterprise and training.

The leaders discussed measures to support small and medium-sized enterprises (SMEs), many of which complain of excessive administrative costs imposed by Brussels.

In a joint statement on economic growth they noted that cutting budget deficits was "not in itself sufficient".

"We have to modernise our economies and strengthen our competitiveness to secure sustainable growth," the statement said.

The EU will help to fund schemes to get young people into work or training in member states with the highest youth unemployment levels.

They pledged to speed up measures to develop the EU single market, including:

• agreement on a common EU patent system by July;
• better targeting of EU funds towards SMEs;
• national legislation to create a functioning single market in services and energy.

The European Commission says 82bn euros (£69bn; $107bn) of EU money is available for countries to spend on projects to boost jobs and growth.