All but two European Union countries agreed on Monday to tougher measures to enforce budget discipline in the euro zone, but the block still showed few signs of producing a comprehensive solution for the sovereign debt crisis or a credible plan to revive fragile economies across Europe.
The meeting of 27 EU heads of state and government was aimed at completing the text of a fiscal compact for the 17 nations relying on or intending to join the euro zone - with only Britain and the Czech Republic opting not to adopt the measures.
After a meeting lasting seven hours, the leaders also issued a declaration calling for a new push to restart growth and combat joblessness across the Continent.
The summit declaration, however, skirted the continuing problems in Greece, where a second bailout is being held up by the inability of the government in Athens to complete a deal with private holders of Greek bonds over the losses they should accept.
After the meeting, informal talks continued between Greek Prime Minister Lucas Papademos and European officials.
An agreement on the fiscal compact could clear the way for Germany to accept stronger efforts by the European Central Bank to support ailing countries and a more comprehensive bailout fund aimed at protecting Italy and Spain against default.
"For those looking at the union and the euro from the outside, it is very important to show this commitment," said Merkel.
Britain, which clashed openly with France and Germany last month over the pact, did not give any ground on Monday and was joined by the Czech Republic.
"We are not signing this treaty," British Prime Minister David Cameron said. "We are not ratifying it. And it places no obligations (on the UK)... Our national interest is that these countries sort out the mess that is the euro."
European leaders agreed to bring a permanent bailout fund into existence without any decisions on size and nature of finance.
Germany backed away from a suggestion that it wanted the government in Athens to cede temporarily control over tax and spending decisions to a new budget commissioner before it can secure further bailouts. Italy won its battle to restrict the scope of the fiscal compact, which calls for making it easier to impose sanctions against countries that break EU budget rules. The compact would make it harder to block sanctions against countries that exceed annual deficit targets but that the same system would not apply to nations with excessive overall debt, like Italy.