The European Union (EU) has reached a deal in principle on tougher fiscal rules to combat the eurozone’s debt crisis, but the details still need to be worked out.

EU leaders at a summit in Brussels have agreed on a so-called “fiscal compact” enshrining the bloc’s budget rules, a diplomat said, but “have not yet discussed the legal form” this accord should take.

Leaders have agreed on a text laying down these principles, including a key German demand that fiscal discipline be anchored in the national laws of eurozone countries.

A draft statement by the leaders of the 17 eurozone countries also calls for the European Court of Justice to check whether fiscal austerity has been adequately written into national laws.

There would be “automatic consequences” for eurozone countries that break the key rule that budget deficits must be under three percent of gross domestic product.

Moreover, sanctions proposed by the European Commission on member states that do not play by the rules would in future be waved through by leaders unless a large body of countries voted against.

“General government budgets shall in principle be balanced,” the draft said.

However, several sticking points were likely to remain when leaders tackled the finer detail of agreeing the legal language required.

“EU President Herman Van Rompuy’s strategy is first to discuss the fundamentals. Only when there is a complete agreement on the content will the leaders talk about the legal form it should take,” another source said.

The summit, seen by many as the last chance to save the embattled euro, opened earlier Thursday amid enduring divisions over whether or not to change the EU treaties and fears of a split into a “two-speed” Europe.

As the talks continued into the early hours of Friday, leaders were haggling over whether the reforms should be enshrined by means of a change in the treaty – as Berlin wants – or just an agreement between the 17 countries that share the euro.

“That’s a different story, the problems have still not been overcome,” one source said.

Diplomats tipped arduous negotiations through the night as five of 27 EU states, including Britain, came out strongly against the German-French drive for a full rewrite of the EU treaty.

The summit is scheduled to end today but may drag into the weekend.

Grant