The Government today claimed "real progress" in watering down a new EU economic accord which the UK said threatened the single market.
The latest draft of the so-called "fiscal pact" being forged by the other 26 member states drops all reference to the single market, reducing the risk of British isolation on any future talks on a cornerstone EU policy.
Having vetoed a new 27-nation EU treaty change at a summit last month, Prime Minister David Cameron risked isolation as 26 nations went ahead with their own "pact" - including talks on financial services and other single market issues they deemed part of their efforts to tackle the eurozone crisis.
But a leak of the latest version of the proposed pact - still being finalised in the run-up to a summit at the end of the month - reveals that earlier references to the single market have been dropped.
And access by the 26 to the full EU institutional structures in any decision they take, has also been watered down.
Mr Cameron had insisted that, by going ahead with an "inter-governmental" agreement without the UK, the others could not expect the full services of the EU Commission, Court of Justice and other key institutions for what is not an official EU accord.
Today, Mr Cameron's official spokesman said Downing Street regarded the latest draft as "progress".
He went on: "Our position has always been that this (26-way) agreement is fundamentally about fiscal rules for the eurozone and how to conduct fiscal policy in the eurozone. That seems to be the nature of the draft agreement as it currently stands.
"I think there is a view in lots of European countries that this agreement is clearly very important - they need new fiscal rules and greater coordination of fiscal policy to make the euro work effectively - but the agreement shouldn't cut across existing treaties."
Despite vetoing a full treaty change, the UK was invited to the ongoing negotiations on the shape of the fiscal pact, and knocking out references to the single market is seen as a sign that London is still wielding influence.
"We have been engaged in that working group, but we are one of many countries" said Mr Cameron's spokesman. "Other countries have been keen to have clarity on this agreement and in particular that it should not cut across the existing treaty or undermine the single market."
The leader of the Prime Minister's Tory MEPs, Martin Callanan, commented: "It is good that the architects of this pact have put aside their objectionable and unlawful scheme to debase the proper running of the single market.
"It is also helpful that they now plan to rely much less on use of the EU institutions, something we have said all along would be illegal and which we will oppose."
He went on: "This is a major step in the right direction and a recognition by Europe's would-be power-brokers that they cannot ride roughshod over the UK's interests.
Stephen Booth, research director of the Open Europe thinktank, commented: "This is a provisional victory for Cameron and Clegg - the references to the single market are gone and the role of the EU institutions watered down. The fact that the changes line up closely with UK objectives suggests that the Government may have more allies than has often been portrayed."