European Union leaders agreed a new "fiscal compact" on tighter budget and debt rules for the eurozone in summit talks that lasted until around 5 am Brussels time.
An agreement to tighten fiscal discipline in the wider EU-27 proved impossible after UK Prime Minister David Cameron made "unacceptable demands" to exempt the City of London from financial market regulations, according to French President Nicolas Sarkozy.
"David Cameron refuses to continue the discussion, but is still in the room," a diplomat told EurActiv just before negotiations were interrupted.
"Cameron is in the corner," he said.
'17+6', more to join
EU leaders have therefore resorted to the less enviable option of a treaty among the 17 eurozone countries, open to others. At least six additional countries have agreed to sign up – Bulgaria, Denmark, Latvia, Lithuania, Poland and Romania.
"Having seen it was not possible to get unanimity, it was the proper decision to go ahead at least with those ready to commit immediately," Sarkozy said at an early-morning news briefing.
"That includes all 17 in the eurozone, plus some who are not in the euro area but want to take part in this fiscal compact," Sarkozy said in reference to Poland and possibly others.
Given the reticence of some leaders, an intergovernmental agreement outside the EU legal framework was the only solution, Sarkozy explained.
"But that does not mean that the EU institutions are not going to have a role," Sarkozy added.
Britain isolated, Hungary undecided
Further talks on the legal details of the new treaty will now resume in the weeks to come, with all the "17+6" signatory countries at the table, EurActiv was told.
The new treaty will be on the table of the next regular EU summit in March 2012 and then open to ratification.
The Czech Republic and Sweden first need to consult their national Parliaments before they can join in, said European Council President Herman Van Rompuy. He confirmed that Latvia, Lithuania, Romania and Bulgaria are all in.
But the UK will definitely not be there and Hungary was expected to be absent as well, sources said, although Budapest might reconsider its stance in order not to be isolated, EurActiv understands.
This would leave Britain as the sole EU member state clearly outside of the agreement, with its future as part of the EU now put in question.
'Fiscal compact'
Along the lines of a new "fiscal compact", sanctions on budget rule-breakers would apply automatically unless blocked by a qualified majority – or three-quarters of eurozone member states. This will be done via an amendment to Article 126 of the EU treaty.
Countries will commit to enshrine a "golden rule" to run budgets which are balanced or in surplus into their national constitutions "or equivalent level". The signatories recognise the European Court of Justice "to verify the transposition of this rule at national level," the text reads.
The new procedure will also oblige euro area countries to submit their draft budgetary plans to the European Commission before they are adopted by their national parliaments, although the Commission will not have the power to annul them.
Financial backstop
Further talks will also address new financial backstops to protect eurozone countries against speculative attacks on the sovereign bond market.
Christine Lagarde, the International Monetary Fund's managing director, confirmed that a commitment to boost the IMF by €200 billion had been struck, via bilateral loans. However, the details still need to be confirmed by the EU and the IMF "within ten days".
Meanwhile, the entry into force of the eurozone's permanent bailout fund – the European Stability Mechanism – will be pushed earlier, in July 2012, instead of 2013.
But only small progress was made on ways boost the firepower of the EU's current bailout fund, the European Financial Stability Facility (EFSF). The fund's ceiling is fixed at €500 billion as of March 2012, the statement said.
