Cameron isolated as leaders meet to save euro

David Cameron looked isolated last night as other European Union leaders rebuffed his demand for special safeguards for Britain in return for approving a deal to rescue the euro.

The 27 EU leaders met late into the night at their critical two-day Brussels summit in the hope of announcing an agreement today which would reassure the financial markets.

But Mr Cameron angered several other EU countries by demanding measures to ensure the City of London is not undermined by the push for fiscal union among the 17 eurozone nations. There was no meeting of minds when Mr Cameron held three-way talks with Nicolas Sarkozy, the French President, and Angela Merkel, the German Chancellor, before the summit's working dinner.

Most EU leaders favour an agreement to entrench budgetary discipline in the eurozone being signed by all 27 member states. But EU sources warned that Mr Cameron's threat to veto such a deal could force the 17 countries using the euro to reach an agreement amongst themselves. That would create a "two-speed Europe" and could reduce Britain's influence.

A two-stage process was under discussion – a fast-track agreement to rein in excessive deficits in the eurozone to be followed later by the new EU treaty sought by Mrs Merkel. Mr Sarkozy warned that the EU could break up if no consensus emerges today. He said: "Never has Europe been in such peril. If we don't reach a decision, we won't get a second chance."

Arriving at the Brussels summit Mrs Merkel said: "The euro has lost credibility and that needs to be restored."

Mr Cameron may be offered a pledge that "fiscal union" would not undermine the EU's single market. But that would not be enough for Conservative Eurosceptics who want him to claw back some powers from Brussels and call a UK referendum on the proposed new treaty.

Yesterday Edward Leigh, a prominent Tory right-winger, warned Mr Cameron not to turn into a modern day Neville Chamberlain. Mr Leigh said: "We have had enough of reading of British prime ministers in the days preceding a summit that they will stand up for the British national interest and then their coming back from a summit with a kind of Chamberlain-esque piece of paper saying, 'I have got opt-outs on this and that and I have succeeded in standing up for British interests'. That ... is not worth the paper it is written on."

Martin Callanan, leader of the Conservative MEPs said: "If there is any treaty change which creates European fiscal union then clearly that will radically affect the UK and that should be put to a referendum. That is what democracy demands."