Britain was left on the margins of the European Union last night after the biggest split in its 54-year history. "It is the beginning of the end for Britain's membership," one EU source predicted.
The European leaders' summit ended in acrimony after David Cameron vetoed a new treaty to rescue the ailing euro and all other 26 EU members looked set to go ahead without him, leaving the UK in a minority of one.
The Prime Minister forced the 17 nations in the single currency to create a "treaty outside the EU treaty" to enforce budgetary discipline and prevent a repeat of the eurozone debt crisis. The other nine nations who are outside the euro deserted Britain and expressed their desire to join the "euro-plus" group.
Mr Cameron's veto, the first time a British Prime Minister has deployed one to block an EU treaty, came after he failed to win safeguards for the City of London. His unexpectedly tough stance delighted Conservative Eurosceptics but worried his Liberal Democrat Coalition partners, the most pro-European of Britain's main parties. Tory MPs called for a "new relationship" with the EU. A referendum on the UK's relationship with Europe is, however, unlikely before the next general election, as the Liberal Democrats could block it. But Mr Cameron will now come under immense pressure to include one in the Tory manifesto.
The Prime Minister insisted last night that Britain's membership of the EU is "good for us" and that – unlike some hardline sceptics – he did not want the UK to end up like Norway, part of the single market but with no say over its rules. "Of course this does represent a change," Mr Cameron said. "But the core of the relationship – the single market, the trade and the investment, the growth, the jobs – that remains as it was."
He insisted Britain's influence in the EU would be maintained and denied his actions had paved the way for British withdrawal.
Other European leaders claimed Mr Cameron's tactics had backfired. "This is going to cost the UK dearly," said one EU official. "It has antagonised everyone." Angela Merkel, the German Chancellor, said: "I really don't believe David Cameron was ever with us at the table. We're very pleased with the result. Yesterday was no weak compromise for the euro."
However, there are fears in the British Government that the euro stabilisation measures agreed at the summit will get the thumbs-down when the financial markets open on Monday. That would mean the crisis is not over – and that a disorderly break-up of the euro could yet plunge Britain into a prolonged recession.
Nick Clegg, the Deputy Prime Minister, defended Mr Cameron's stance but later acknowledged the disquiet in his own party by saying: "I think any Eurosceptic who might be rubbing their hands in glee about the outcome of the summit should be careful what they wish for, because there is an increased risk of a two-speed Europe in which Britain's position becomes more marginalised, and that would be bad for growth and jobs."
The summit was a clear victory for Nicolas Sarkozy, the French President, who had wanted a new treaty based on the 17-member eurozone. Six of the "outs" joined the intergovernmental agreement immediately and three others – Sweden, Hungary and the Czech Republic – look likely to follow suit.
A prolonged legal wrangle is in prospect over whether the "euro-plus" bloc can use EU institutions such as the European Commission and the European Court of Justice. Mr Cameron is adamant that they cannot, but his line was seen as untenable.
Mr Cameron insisted he had followed a "combined position" agreed by Tories and Liberal Democrats.
Guy Verhofstadt, former Belgian PM, said: "It was not wise of Cameron. He's putting himself outside of the club and this club is his main trade partner."
Good News or Bad: Market Reactions
European agreement on plans for deeper economic integration lifted the mood across the markets yesterday. The FTSE 100 was almost 1 per cent higher as traders in the City digested the UK's decision to steer clear of the new plans.
On the Continent, the German market was up by 2 per cent, while Italian stocks rose by more than 3 per cent and Spanish shares jumped by over 3 per cent, relieved at the long-awaited deal.
For And Against:
David Cameron's strategy has let Britain down... Britain this morning is more isolated than at any point in the 35 years of British membership of Europe."
Douglas Alexander, shadow Foreign Secretary
"The demands Britain made for safeguards ... were modest and reasonable. They were safeguards for the single market, not just the UK."
Nick Clegg, Deputy Prime Minister
"Outcome at last night's EU summit was a sign of weakness from David Cameron – why did he fail to build alliances before the summit?"
Ed Miliband, Labour leader (on Twitter)
"They've committed to giving up more national control over their budgets. It is very sensible to stand apart from that."
William Hague, Foreign Secretary
"David Cameron has played a blinder.... Everybody's desperate to save the euro, but [these measures] would mean a quite unacceptable loss of national sovereignty."
Boris Johnson, Mayor of London
"We finish this summit with Cameron having gained nothing, with the prospect of us repatriating powers having disappeared completely and with the City of London, that he sought to protect, now more vulnerable than it has ever been."
Nigel Farage, Ukip leader
"If the attitude of the French was as exemplified by the statement made by President Sarkozy, then I do not think David Cameron had any alternative."
Former Liberal Democrat leader, Sir Menzies Campbell
"Cameron has achieved political and economic isolation for the UK whilst keeping us in the Common Agricultural Policy, Working Time Directive and common fisheries. Not an ounce, not a gram of leadership to his own party – just surrender. So the euro crisis continues and we tip towards recession. The euro is no stronger, so our economy will suffer. The others will unite, so we will be excluded."
Chris Bryant, Labour MP, former Europe minister
"To have bargained away Britain's rights, freedoms and economic wellbeing would have been unthinkable. If Merkel and Sarkozy hoped he would be craven enough to do it, they know differently now."
Martin Callanan, Conservative leader in the European Parliament
"By seeking to protect bankers from regulation, [Cameron] has betrayed Britain's real interests and done nothing in practice to help the City."
Chris Davies, Lib Dem MEP
"This is a very big change to the European Union. We are going to be a satellite on the edge of what is going to be an economic superpower."
Bernard Jenkin, Conservative MP
"Looks like UK taxpayers will pay even more to bail out the eurozone in return for little say in EU decisions that affect our economy."
Diana Johnson, shadow Home Office minister
"Cameron is to be warmly congratulated on reaching his goal of second-class membership of the EU."
Andrew Duff, Liberal Democrat MEP
"David Cameron requested something we all considered unacceptable, a protocol... allowing the UK to be exempted for a number of financial regulations."
Nicolas Sarkozy, French President
"This is a breakthrough to a union of stability. The fiscal union will be developed step by step. We will use the crisis as a chance for a new beginning."
Angela Merkel, Chancellor of Germany
"The euro is a burning building with locked doors, and it seems to be a pretty good idea to be out of that. Margaret Thatcher lost office just after she said 'no, no, no' and that's what David Cameron said yesterday. But one leader of this country after another has found it difficult in Europe. The euro is going to continue to be in deep trouble."
"We have two crises now. A still-unresolved eurozone crisis and a crisis of the EU. Of the two, the latter is potentially the more serious one."
Wolfgang Münchau, Financial Times
"The majority of member states welcome this further step... Britain is outside of decision making, Europe is united.",
Dalia Grybauskaite, President of Lithuania
"The battle lines are much clearer. David Cameron has sided with those who see Britain becoming like Switzerland as a Good Thing."
Charlie Beckett, Polis
"I do not understand the British position. If they do it for popular votes but losing influence then it's up to Britain to do so."
Elmar Brok, German MEP
"We are set on a path which involves fundamental renegotiation. And that in due course will require a referendum – because it's about the British people, it's about the electors, the people who send us to Parliament."
Bill Cash, Conservative MP
"The French and Germans, in slightly different ways, are trying to use this euro crisis as a means to centralise even more power within the EU institutions."
Philip Booth, IEA
"Cameron made demands that were unacceptable, even to me. It will have an impact on [Britain's] influence and this displeases me because it is good to have a counter-weight to countries like France."
Mario Monti, Prime Minister of Italy
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