Last week's European Council meeting formalised the marginalisation of the UK. David Cameron's decision to veto all 27 member states from taking the necessary steps to closer fiscal union, forced the other 26 countries (including nine non-eurozone countries) to forge ahead on their own. It was both incomprehensible and a huge strategic mistake. Incomprehensible because Britain was seeking exemptions from Europe's single market's rules to ringfence the City of London from tighter EU regulations on reckless banking activities – a key plank of the strategy to tackle the causes of the financial crisis. Mr Cameron was also seeking to ensure that the EU supervisory authorities would not have more influence than national regulators. Yet, to do so would have been to deny the very basis of the single market.

Strategically Mr Cameron's defiance may have pleased the home crowd but his action backfired spectacularly. The single market in financial services will still go ahead via a new treaty, but minus the UK. Far from protecting the City and Britain's wider economic interests, Mr Cameron may have actually achieved the opposite.

The episode will further sour relations and undermine British influence on a range of areas. Since the 1950s, Britain has been the reluctant member of the club. But it has yet to learn that this reluctance will not prevent EU nations from developing closer ties to address new geopolitical challenges. The UK will continue to play catch-up or worse, if Eurosceptics succeed in winning the hearts and minds of a people fed a diet of misinformed, nationalistic nonsense via large swathes of the popular press.

Mr Cameron's veto may also have unwittingly brought France and Germany closer together. The risk of further bilateral deals which the European Commission is unable to referee on behalf of all 27 states and the single market, is now greater. Merkozy was never a marriage made in heaven: they see the need for fiscal union from different national perspectives – one as a means to greater discipline, the other as a route to more budgetary solidarity – but at least they agree on the goal. And having the troublesome British out of the way, rather than constantly holding things up, probably serves both.

Whatever a new breakaway treaty does, it must conform to the basic principles of democratic accountability enshrined in the EU institutional structures and decision-making procedures and not establish new ones. It also means respecting full parliamentary accountability. Future historians, however, will likely identify the Brussels summit as a turning point in the EU's evolution. One can only hope that this does not end with the gradual dissolution of all that has been achieved over the past 60 years.

Guy Verhofstadt was Prime Minister of Belgium 1999 - 2003. He leads the Liberals in the European Parliament