German Chancellor Angela Merkel has described the signing of a new treaty aimed at forcing European Union countries to get their financial houses in order as an historic event.

"This is a milestone in the history of the European Union," the chancellor told reporters at the end of a two-day EU summit in Brussels. She said she and the other 24 leaders who signed on to the pact had taken an "important step towards a stability union and an important step towards elements of a political union in a very short space of time."

At the same time though, she warned that Europe's sovereign debt crisis was far from over.

"We are still in a fragile situation," the chancellor said. "We have made progress, but to say that we can now give the all-clear, that would be much too early."

Merkel's cautious tone came in sharp contrast to earlier, more upbeat comments by French President Nicolas Sarkozy.

"We are in the process of turning the corner on the financial crisis," Sarkozy said.

Britain and the Czech Republic were the only two of the EU's 27 member states who declined to sign the Treaty for Stability, Coordination and Governance. Twelve of the states need to get the treaty ratified at home before it can come into force, in most cases, by their national parliaments. Ireland is to hold a referendum.

The treaty, which Germany had pushed hard for, is meant to make it much more difficult than it has been up until now for European governments to run up big deficits. Among other things, it provides for punitive measures to be imposed automatically if a state fails to comply.

Spain's challenge

Almost before the ink was dry on the document, Spain appeared to be on a path to become the first signatory to put the EU's new budgetary pact to the test.

Spanish Prime Minister Mariano Rajoy told reporters in Brussels that his government had revised its deficit target for 2012 upwards from 4.4 to 5.8 percent of gross domestic product. However, Rajoy insisted that he was still complying with EU demands for Spain to cut its deficit.

"I'm backing austerity and aim to reduce the deficit from 8.5 percent to 5.8 percent; that's significant austerity," said Rajoy, who described the new target as "sensible." He also said he had not used the summit to inform other EU leaders of the move, because it was part of Spain's political "sovereignty."

Spain has already adopted a series of austerity measures and economic reforms in a bid to avoid getting into the dire straits that have forced Greece, Ireland and Portugal to seek international bailouts.

However, there was no indication on Friday that the EU will be willing to compromise on the issue.

"Meeting fiscal consolidation targets in vulnerable countries has been and remains one of the cornerstones of the EU's comprehensive response to the crisis. It is key to reinforce confidence," a spokesman for European Economics Commissioner Olli Rehn told the dpa news agency.

pfd/slk (AP, Reuters, AFP, dpa)