The UK is the only EU member state which refused to back a tax and budget pact – known as a “fiscal compact” – aimed at tackling the eurozone debt crisis.
UK prime minister David Cameron (photo, from guardian.co.uk) said he had to protect key British interests, including its financial markets.
The 17 countries that use the euro have all agreed to the deal and gradually persuaded that other EU member states to join the new treaty as well.
With this treaty, the EU member states would allow for unprecedented oversight of national budgets and penalties for breaking deficit rules.
“Except for one, all are considering participation,” EU president Herman Van Rompuy told reporters after the summit ended. “I’m optimistic because I know it is going to be very close to 27.”
Of the nine EU members outside the euro, six – including Denmark, Poland and Latvia – have agreed to join the new deal, while Hungary – which first said it would also remain outside the deal before changing its decision -, the Czech Republic and Sweden, have said they must consult their parliaments.
But the Republic of Ireland, a member of the eurozone, has a constitutional requirement to hold a referendum on any major transfer of powers to the EU.
The probability of a referendum is “50-50 and we will be looking at the detail over the next couple of weeks”, Irish minister for European affairs Lucinda Creighton told Reuters news agency.
During a press conference after the summit, German chancellor Angela Merkel said : “This is the breakthrough to the stability union.”
EU leaders wish to have this pact ready to take effect next March.
An attempt led by the French and Germans to get all 27 members to support changes to the union’s treaties was block by the UK which used its veto.
Therefore this accord will be backed by a treaty between governments, not an EU treaty.
Earlier, Mr Cameron, said: “What is on offer isn’t in Britain’s interests so I didn’t agree to it. Of course we want the eurozone countries to come together and to solve their problems. But we should only allow that to happen inside the European Union treaties if there are proper protections for the single market and for other key British interests. Without those safeguards, it is better not to have a treaty within a treaty but to have those countries make their arrangements separately.”
The British prime minister said not signing this deal was “the right thing” because it was not in his country’s interests.
“We’re still in the single market. That is the best safeguard of keeping markets open,” he said.
According to French president Nicolas Sarkozy the issue had been Mr Cameron’s insistence on a protocol allowing London to opt-out on proposed change on financial services.
“We could not accept this,” he said.
Britain faces “certain isolation” in the immediate future, said Italy’s PM Mario Monti, who regretted the UK’s decision.
“Cameron made demands that were unacceptable, even to me,” Mr Monti told reporters. “It will have an impact on its influence and this displeases me because it is good to have a counter-weight to countries like France,” he said.
‘Really good step’
After nearly 10 hours of talks running into the early hours of Friday morning, the summit approved a new fiscal rule on balanced budget to be enshrined into national constitutions.
There will also be automatic sanctions for euro area deficit offenders, unless three-quarters of states vote against the move.
The ESM, the currency bloc’s future permanent bailout fund, will be capped at 500bn euro ($666bn), and it will not get the banking licence that would have allowed it to draw on European Central Bank (ECB) funds to increase its firepower.
And in order to help debt-stricken eurozone members, all the EU countries will provide up to 200bn euros to the International Monetary Fund (IMF).
The deal was welcomed as “a really good step in the right direction” by the IMF chief Christine Lagarde.