European Union (EU) leaders agreed early Friday morning on establishing a new "fiscal compact" based on inter-governmental treaties rather than the expected EU treaty changes.

The progress, achieved at a make-or-break EU summit, offered a glimpse of hope for the embattled eurozone.

17 plus 6 inter-governmental treaties

Under the agreement, reached after 10 hours of tough negotiations, 17 eurozone members plus six non-eurozone EU states would join the compact based on "inter-governmental treaties," said European Council President Herman Van Rompuy.

Britain and Hungary said they would not join the fiscal compact while the Czech Republic and Sweden "have not yet a mandate to participate," according to Van Rompuy.

Strengthening fiscal discipline through such a fiscal compact would be "much more rapidly and easier to approve and ratify," Van Rompuy told reporters after the first day of talks at the two-day EU summit.

"We all commit to a new European strong fiscal rule," which means member states will translate it into their constitutions or equivalents, reinforcing the rules on excessive deficit procedures by making them more automatic, Van Rompuy said.

The president also said that, under the fiscal compact, member states will have to submit their draft budgetary plans to the European Commission, the EU's executive arm.

However, the European Council did not reveal the details of the deal and Van Rompuy refused to answer a question about what are the concrete measures to punish rule offenders.

Britain blocks treaty changes

"The inter-governmental treaties are handicapped somehow, but a full-fledged treaty change is not possible," Van Rompuy admitted.

French President Nicolas Sarkozy blamed Britain for failure to achieve full-fledged treaty changes among all EU member states.

Sarkozy said the British side was trying to be exempted from certain financial regulation in the name of EU treaty changes.

"We could not accept this" because a lack of sufficient regulation caused the current problems, Sarkozy told reporters at a separate press conference after the summit.

For his part, British Prime Minister David Cameron said after the summit that rejecting the treaty changes was the "right thing" for Britain.

Ensuring stability in the eurozone was "good for European countries, good for Britain as well, but also we need to protect Britain's interests," Cameron said on arrival at the summit on Thursday evening.

Win back credibility

German Chancellor Angela Merkel, whose country boasts the solidest economy within the 17-country bloc, said the decisions made at the summit will increase the credibility for the eurozone.

"I have always said the 17 states of the eurozone need to win back credibility. And I think that this can happen, will happen, with today's decisions," she said after the meeting.

Prior to the summit, Merkel said the utmost aim of the talks was to restore "credibility." "The euro has lost credibility and this must be won back. We will make clear that we will accept more binding rules," she said.

Before the summit, the European Central Bank (ECB) on Thursday lowered its benchmark interest rate to its historic low of 1 percent, and announced several measures to shore up the continent's economy and financial system.

Meanwhile, the European Banking Authority, the EU's banking regulator, said in a statement that European banks must raise an extra 114.7 billion euros (152.5 billion dollars) in new capital to rebuild markets' stability and confidence.

It said that its final recapitalization plans were part of "coordinated measures to restore confidence in the banking sector."