BRUSSELS, March 2: European Union leaders signed on Friday a treaty designed to force governments to adopt balanced budgets through a “golden rule” or face fines.

It “helps prevent a repetition of the sovereign debt crisis,” said EU president Herman Van Rompuy after the ceremonial signing in the EU's Brussels headquarters.

The economic and monetary union envisaged when the euro currency was introduced in 1999 “is finally walking on two legs,” Van Rompuy said.

It 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.

In the pact, states that fail to adequately implement the sharpened rules in national law will be dragged before the European Court of Justice.

The treaty updates the EU's Stability and Growth Pact, first agreed in the 1990s and last reformed in 2005.

Few of the 25 states approving the treaty are within the EU's traditional deficit ceiling of 3.0 per cent of gross domestic product.

Under the so-called “golden rule,” a country's structural deficit should be capped at 0.5 per cent of GDP.

Countries with debts comfortably below the 60 per cent-of-GDP EU threshold will get more leeway, up to 1.0 per cent of GDP for the structural deficit, which does not include one-off effects such as debt repayments.

But “automatic consequences,” or brakes, are triggered where this goal is missed by too great a margin, with the EU ultimately levying fines on those who persistently breach these commitments.—AFP