Only Britain and the Czech Republic refused to agree to the fiscal compact, due to be signed in March, that will impose quasi-automatic sanctions on countries that breach European Union budget deficit limits and pledge balanced budget rules will go into national law.
Prime Minister David Cameron said further reforms were still needed by eurozone states to end the debt crisis in the region.
"I don't think this treaty on its own will sort the eurozone's problems," he said after the leaders' meeting in Brussels. "There is a fiscal problem but there is also a competitiveness issue."
Countries like Italy and Portugal "need to reform their labour markets, open up their economies," Mr Cameron added.
Officially, the half-day summit focused mainly on a strategy to revive growth and create jobs at a time when governments across Europe are having to cut public spending and raise taxes to tackle mountains of debt.
But differences over the limits of austerity, and Greece's unfinished debt restructuring negotiations, hampered efforts to send a more optimistic message that Europe is getting on top of its debt crisis.
French President Nicolas Sarkozy told a news conference he expected a final agreement on reducing Greece's debt to private bondholders "in the next few days" and believed that European institutions - a clear reference to the European Central Bank - would decide independently to help meet a funding gap.
EU Council President Herman Van Rompuy said a deal was needed this week in order for it to be finalised in time to avert a Greek default in mid-March when it faces huge bond repayments.
Asked about a German proposal to place Greek public finances under the control of a European commissar, Mr Sarkozy said: "That there should be supervision is quite normal, but there can be no question of any country being put under stewardship."
The leaders agreed that a €500bn (£418bn) European Stability Mechanism (ESM) will enter into force in July, a year earlier than planned, to provide support for heavily indebted states.
However the eurozone is already under pressure from the US, China, the International Monetary Fund and some of its own member states to increase the size of the financial firewall.
Many economists doubt the wisdom of so severely restricting deficit spending and EU diplomats say the fiscal compact was mostly a political gesture to calm German voters angry at repeated euro zone bailouts and to restore market confidence.
President Sarkozy said Czech Prime Minister Petr Necas had said he could not sign up now for constitutional reasons.
There was no repetition of last month's confrontation between Mr Cameron and Mr Sarkozy when the Prime Minister vetoed efforts to amend the EU treaty to tighten eurozone budget discipline.
But the PM told reporters: "We are not signing this treaty. We are not ratifying it. And it places no obligations on the UK.
"Our national interest is that these countries get on and sort out the mess that is the euro," he added.
German Chancellor Angela Merkel said that although Cameron had shown no sign of relenting in his opposition to treaty change, the new pact could be easily slotted into EU law at a later date and she expected it would be within five years.
The Telegraph
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