Top Tories press Cameron on EU reform referendum

The Prime Minister's threat to veto a deal on ending the problems in the euro has angered some in Brussels (EPA)

David Cameron is under mounting pressure from all sides as he prepares for today's critical European Union summit aimed at ending the crisis in the eurozone.

A second cabinet minister joined Conservative backbenchers in demanding a referendum on Europe – a move to which Mr Cameron cannot agree without risking the break-up of the Coalition because the Liberal Democrats oppose one.

Owen Paterson, the Northern Ireland Secretary and a leading figure on the Tory right, openly challenged Mr Cameron's opposition to a UK referendum on the proposed new EU treaty to impose budgetary discipline in the 17 eurozone countries.

"I think there will have to be one, because I think the pressure would build up," he told The Spectator magazine. "This isn't going to happen immediately, because these negotiations are going to take some months. But I think down the road that is inevitable."

Mr Paterson's intervention is significant because Iain Duncan Smith, the Work and Pensions Secretary, was slapped down by Downing Street on Monday after calling for a referendum.

Several other ministers have privately lobbied Mr Cameron to take a tough line at the summit. Backbenchers threatened a protest motion signed by more than 100 Tories if he returned empty-handed from Brussels.

After Mr Cameron endured several demands for a return of some EU powers to Britain at a difficult session of Prime Minister's Questions, Boris Johnson joined the Tory rebellion. The Mayor of London told BBC Radio 4: "It's absolutely clear to me that if there is a new treaty at 27 – if there is a new EU treaty that creates a fiscal union within the eurozone – then we would have no choice either to veto it or to put it to a referendum."

Mr Cameron's juggling act was made more difficult when Angela Merkel, the German Chancellor, and Nicolas Sarkozy, the French President, outlined their blueprint ahead of the two-day summit, which begins with tonight.

Their joint letter to other EU leaders revived their call for a transaction or "Robin Hood" tax, which Britain strongly opposes because of its impact on the City of London. But Mr Cameron can veto an EU-wide tax – and could call the eurozone's bluff by inviting it to go ahead without the UK, which could give London an advantage over the rival financial centres in Frankfurt and Paris.

The Franco-German plan appeared to offer Britain a seat at the table at monthly summits of the 17-strong euro club if it approves the proposed treaty. But it was seen as creating the machinery for a two-speed Europe. It said the "new legal framework" would be "fully compatible with the internal market" but could fast-track issues like financial regulation, transaction taxes and the harmonisation of corporation taxes.

French and German officials made clear they would prefer the new treaty to cover all 27 EU countries – but that the 17 eurozone countries would press ahead anyway if Mr Cameron carried out his threat to veto an EU-wide agreement. Ahead of a difficult negotiation in Brussels, the Prime Minister is keeping his options open on whether a treaty for 17 or 27 nations would be best for Britain.

Some EU sources think he overplayed his hand by threatening to veto a deal to end the euro turmoil, saying his bargaining position was weaker than he thought. In Brussels, there was anger at Britain's threat to wield the veto.

Mr Cameron tried to reassure Tory MPs, telling the Commons: "We will have the key aim of helping to resolve the eurozone crisis. We believe that means eurozone countries doing more things together. If they choose to do that through a treaty at [the level of] 27 [member states] that we are involved in, we will insist on safeguards for Britain.

"And that means making sure we are better able to do things in the UK to protect our own national interests. The more that countries in the eurozone ask for, the more we will ask for in return."

John Baron, MP for Basildon and Billericay, urged Mr Cameron to seize this "once-in-a-lifetime opportunity" to return powers from Brussels to Britain.

Many Tory MPs were not satisfied by Mr Cameron's assurances. Stewart Jackson, who resigned as Mr Paterson's parliamentary aide to vote for an EU referendum in October, said later the UK cannot "sit by and sanction the creation of what will become a de facto country".

Cameron's veto: How does it work – and would he use it?

David Cameron raised the temperature ahead of today's Brussels summit by threatening to veto a deal to rescue the euro unless Britain gets something in return.

His move has angered some of Britain's EU partners, who insist the UK has nothing to fear from the proposals for tougher budgetary discipline in the 17-nation eurozone.

Britain could veto a new EU treaty covering all 27 members – the preferred option of most leaders. It could not stop the 17 eurozone countries going ahead with their own agreement.

However, British officials believe there are legal doubts about whether the 17 could use EU bodies such as the European Court of Justice and European Commission without a nod of approval from the 10 "outs" including Britain. So the UK could have a sort of veto.

Britain could also veto anEU-wide financial transactions or "Robin Hood" tax to stop it being imposed on the City of London, but could not stop the 17 going ahead with one.

In practice, Mr Cameron is unlikely to want the opprobrium that would be heaped upon him for scuppering a deal to rescue the euro.

Andrew Grice

Tomorrow's summit: What the leaders want

David Cameron

What he wants A deal that stabilises the euro, without threatening the single market or the City of London.

What he is likely to get Warm words about the single market and the City.

What he says "The more that countries in the eurozone ask for, the more we will ask for in return."

What he thinks "How the hell do I keep Tory MPs, the Liberal Democrats and the rest of the EU happy at the same time?"

Angela Merkel

What she wants A revised EU treaty imposing tough budgetary discipline to reassure her people and parliament.

What she is likely to get A commitment to a new treaty, but with not as much detail as she would like.

What she says "We want structural changes which go beyond agreements. We need brakes on debts."

What she thinks "I can't bear another one-to-one with Sarko."

Nicolas Sarkozy

What he wants An agreement that saves the euro without creating a "United States of Europe".

What he is likely to get Some concessions that leave the final decision on sanctions for nations with excessive deficits in the hands of politicians, not EU institutions.

What he says "We need to move as quickly as possible."

What he thinks "I have a presidential election to win next spring."