EU treaty and debt crisis: as it happened December 9, 2011

21.03 The Daily Mail is also running with a front page story on the EU summit.

Their headline reads: "The day he put Britain first".

The sub-headline reads: "Defiant Cameron stands up to Euro bullies - but French plot revenge for historic veto".

20.25 The plan by France and Germany to build a separate fiscal union after Britain blocked changes to the EU’s treaty is an “abuse of power”, according to confidential legal advice seen by The Daily Telegraph.

The advice warns that the breakaway group of 26 countries cannot use the EU institutions or change European treaties without Britain’s consent. David Cameron said:

Clearly, the institutions of the EU belong to the union, they belong to the 27. They are there to do the things that are in treaties, that we have all signed up to over the years.

20.15 Tomorrow's front pages are now emerging. The Independent has gone with "The EU leaves Britain", while i plumps for "EU leaves UK out in the cold".

20.03 The situation in the eurozone does not justify a greater bond-buying intervention by the ECB, Bank of France chief Christian Noyer, who also sits on the ECB's governing council, says:

There is no need for something more massive.

19.31 The Quote of the Day award may have to go to author Ian Rankin, for this tweet:

19.14 Markets reacted positively to the summit conclusion today, but it wasn't always clear why. Neal West of Barclays Capital, said:

For large parts of today I had genuinely no idea what was going on. I had a lot of emails and reports giving ‘chapter and verse’ about the summit and how ‘Dave’ had said “non” to a full treaty (apologies, that appears to be the bankers' fault, again).

But as Sir Humphrey would say, all we knew was there is something we don't know and we want to know but we don't know what because we don't know! Hence I really struggled to have a clue why markets were reacting the way they were.

18.54 Ireland's PM Enda Kenny says he's unsure whether the EU's new agreement will require a referendum. Irish voters rejected the union's previous two treaties in 2001 and 2008, delaying ratification of both for years. In both cases, the government staged second referendums a year later which went the other way.

Every country has to do its own thing. In our case, the attorney general will have to analyze that, forensically examine it, and give an official and formal advice to the government as to whether a referendum is required or not. Obviously, I wouldn't speculate on that because I wouldn't be competent to do so.

Ireland's minister for European affairs, Lucinda Creighton, said she considered prospects of a referendum "50-50".

^{Enda Kenny, Ireland's prime minister}

18.14 Less than two months ago Nick Clegg wrote in The Guardian about the polar extremes of the European debate: those who saw an opportunity for a more centralised EU, and those who saw a chance to pull back from it. Both would be a mistake, he wrote:

Both would have the UK give up our place at the European top table, sacrificing the influence essential to our prosperity. It is only by having a loud voice in a united Europe that we can promote the open economy that will deliver growth. Being shoved to the margins, or retreating there voluntarily, would be economic suicide: a surefire way to hurt British businesses and lose jobs.

The coalition will be strategic and long-sighted and we will not give up the influence that benefits the British people. Nor will we sit on our hands and allow others to take it from us.

But today Nick Clegg said (18.01) that he believes the demands the PM put on the table last night were "reasonable and modest". Of course, they're also the reason Britain now stands alone as all 26 other EU states begin to prepare for fiscal union...

18.01 More from Nick Clegg, who claims that the safeguards the Prime Minister sought for the country last night were "reasonable and modest" in scope:

We were not seeking some great repatriation of powers from Europe back to Britain. We were not even seeking some great exceptional treatment for the City of London. In fact what we were simply seeking was a level playing field so that the rules that apply to the City of London apply evenly to all other financial services centres in Europe.

I thought that was reasonable. The Prime Minister put that forward as a reasonable package, it is a pity that other countries chose not to take up that suggestion because that would have allowed us to move together as a club of 27.

17.54 Speaking to the BBC in Sheffield, Nick Clegg has warned that the risk of a two-speed Europe emerging is now greater:

I think any eurosceptic who might be rubbing their hands in glee about the outcome of the summit last night should be careful for what they wish for, because clearly there is potentially an increased risk of a two-speed Europe in which Britain's position becomes more marginalised, and in the long-run that would be bad for growth and jobs in this country.

And that is why I believe what we do now is re-double our efforts to make sure the integrity of the single market is guaranteed, that the European institutions which police the single market are strengthened, the single rule-book which enforces the single market is properly applied and that Britain through that remains right at the centre of the big economic debates upon which millions of people's jobs in this country depend.

17.45 Another video for you now, this time Foreign Secretary William Hague claiming that Britain "will be respected more and have greater influence in the future" because of David Cameron's rejection of a new EU treaty last night. "We're not sulking," he adds.

17.31 More reaction on the EU summit now. The first offering some strong opinion on exactly what needs to be done to ease the crisis and the second... not.

Yael Selfin, head of macro-consulting and a director in PwC's economics team, said:

What is required is a firm commitment by all eurozone countries to adhere to a new fiscal reality and enforceable actions. Other issues will also need to be addressed, such as required structural reforms in some of the more vulnerable countries to ensure economic growth can emerge at some point from the current crisis, making it feasible for countries to pay off their debts.

John Cridland, CBI director-general, said:

The mist is still clearing on the implications of the new treaty. New fiscal rules seem to be coming together but the all-important question of lender of last resort does not seem to have been resolved yet. The markets will decide if what has been done over the last two days is enough.

^{John Cridland, CBI director-general}

17.19 Michael Portillo has just spoken to BBC News, saying that the events of the last 24 hours will go down in history.

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.

But he added that the biggest no of all had come years ago from Gordon Brown, when he refused to enter the euro. "Thank goodness he did", said Portillo.

17.13 We have video for you now of Vince Cable claiming that Britain will have to digest the impact of any treaty changes, but that the really important issue was safeguarding the single market. He warns that if it collapsed there would be calamitous consequences.

17.03 If we take the FTSE 100 on its own we can notice more detail, showing that the upturn after yesterday's summit is nothing compared to the volatility seen over the last month.

16.59 Time for the customary end-of-day chart showing the European markets:

16.43 The European markets have closed for the day, recouping some losses from earlier in the week after a majority of European leaders agreed to work towards stricter budget discipline.

The FTSE 100 closed 0.83pc up, the DAX rose 1.91pc and the CAC climbed 2.48pc. Milan soared 3.37pc.

Joshua Raymond, chief market strategist at City Index, said:

Investors reacted positively to speculation that China was set to invest $300bn into Europe and the US and continued to digest the output of a new EU accord that isolates the UK. It has been a very choppy trading session after a morning of somewhat mixed trade, with indices swinging between losses and gains, as investors digested the outcome of the new EU accord between at least 23 of the 27 EU members.

16.34 The eurosceptic think-tank Open Europe has responded to the EU summit. Little surprise, but director Mats Persson says that Cameron "had little choice but to wield his veto".

He was under domestic political pressure but, most importantly, he genuinely felt that there were vital UK interests at stake. However, this use of political capital will only be a sound investment if it is followed up with a concerted push for a more flexible, adaptable and competitive EU in which the UK can feel at home.

The eurozone countries now enter a legal minefield in their bid to draw up new treaty commitments on debts and budgets that can credibly be enforced and, for the UK, the threat remains that the EU institutions are colonised by eurozone interests.

16.26 We have a video for you now of David Cameron attempting to justify his stand against EU treaty changes. "My job is to stand up for Britain," he said.

16.18 Bonds backed by the EFSF bail-out fund are being treated as ‘no better than junk bonds’, according to Guido Barthels, co-manager of the $2.5 billion Ethna AKTIV-E fund.

He told Citywire Global that he's halved his holdings in EFSF bonds in the wake of growing anti-Europe sentiment in the global fixed income community, and criticised David Cameron for failing to reach a treaty agreement last night.

We halved our positions and not because we stopped believing in these kinds of investments but the risk was simply too much. I think people in England will begin to recognise that it is very difficult to compete in the global market without forming some sort of single national state. England and Europe is operating against China and the US, which are gigantic economic powers, and if they want to compete with equal means they have to agree on a way forward.

What the fall out will be from last night nobody knows but it is not over until the fat lady sings, and even if you think David Cameron may have intervened, it is not up to him. He is neither a lady, nor is he fat.

16.09 Early this afternoon (13.24) we mentioned how The Daily Mail was reporting that Nicolas Sarkozy had snubbed David Cameron, apparently a response to the PM's veto of the EU treaty.

We also reported slightly later (14.51) that this seemed to be untrue as the pair had shaken hands just minutes before. Still, we have the video of the apparent snub now, so you can decide for yourself.

16.02 More from that interview: David Cameron acknowledged that it was unprecedented for a British prime minister to veto an EU treaty:

You've never seen Britain say 'no' to a European treaty before. There was a treaty on the table, it didn't adequately protect Britain's interests. Instead of going along with it, I said no to it. I thought that's my job.

15.59 Away from talk of wife-swapping, David Cameron has been discussing his veto of the treaty with the BBC and Sky News. He ruled out a referendum, arguing it was unnecessary as Britain had not signed up to any new treaty.

Of course this does represent a change in our relationship. But the core of the relationship - the single market, the trade and the investment, the growth, the jobs that we want to see - that remains as it was.

15.49 Ambrose Evans-Pritchard withholds comment about David Cameron's performance last night in his latest blog post, but the headline, "Europe's blithering idiots and their flim-flam treaty", shows that he pulls no punches elsewhere.

The leaders of France and Germany have more or less bulldozed Britain out of the European Union for the sake of a treaty that offers absolutely no solution to the crisis at hand, or indeed any future crisis. It is EU institutional chair shuffling at its worst, with venom for good measure.

It is risky to reach instant conclusions on a fast-moving story but it looks as if the EU may soon be reduced to a shell, with a new union forming among the core.

15.45 Earlier we brought you news of a French source saying that David Cameron is "like a man who goes to a wife swapping party without his wife". Paul Waugh of Politics Home tweets the prime minister's response to that jibe:

15.38 Mario Monti, Italy's prime minister, has also been speaking about the negotiations. He said he'd have preferred a summit agreement to have included all 27 EU members and not only the eurozone nations.

Monti said demands by the UK for a broader agreement were impossible. He added that the UK will experience a “certain isolation” from decision-making following this week’s EU summit, despite Cameron's claim this morning that Britain remained a "full and very influential" member of the European Council.

15.34 Labour leader Ed Miliband has said David Cameron mishandled last night's negotiations "spectacularly".

It's a terrible outcome for Britain because we are going to be now excluded from key economic decisions that will affect our country in the future.

Frankly, David Cameron mishandled these negotiations spectacularly. He has spent many months, not really promoting the national interest, but more interested in dealing with the splits in his own party. That has served Britain very badly and I fear for the consequences for our country.

What I find incredible is that he simply ended the negotiations yesterday and said that was it. He could have carried on negotiating today to get a better outcome for Britain.

Let's not be under any illusions - this is not so much a veto as David Cameron walking away, and that is not going to help Britain because we are going to have 20-something countries in the EU going ahead without us, making decisions that will affect our country for years to come.

15.25 European markets are in positive territory this afternoon, with the FTSE 100 rising 0.4pc to 5514, the DAX putting on 1.5pc to 5970 and the CAC rising 2.1pc to 3158.

A pledge by EU leaders that national central banks will channel €200bn through the International Monetary Fund to fight the debt crisis has helped sentiment. Lifting the mood too were suggestions that China’s central bank plans to set up $300 billion of funds to invest overseas.

15.19 Earlier on we covered Angela Merkel's press conference, where she said that "team spirit" was in evidence around the negotiating table last night and that the atmosphere was "always very constructive".

But Bloomberg, which presumably caught her in a more candid mood, is now quoting Merkel as having said: "I really don't believe David Cameron was ever with us at the table".

15.17 A quick look at some of this morning's papers from the continent. Unsurprisingly, many have focused on the possibility of a break-up of the eurozone.

El Pais: La cumbre del euro se fractura
La Vanguardia: Europa o nada
La Stampa: Ultima chance per l'euro
Die Welt: Deutsche Banken versagen bei Stresstest

15.03 David Cameron has given a television interview to the BBC's Nick Robinson, claiming that Britain remained a "full and very influential" member of the European Council.

Are we better off outside the euro? You bet we are. What we've done is squarely in Britain's interests. I think I did the right thing for Britain. I absolutely did what I said I was going to do. I think it is right for Britain to ask which bits of Europe most benefit us as a nation.

14.55 The US markets have opened for the day. Five minutes into trade, the Dow Jones was up 0.67pc, the S&P 500 rose 0.72pc and the Nasdaq gained 0.56pc. European markets are also making gains today - we'll bring you an update on those in a moment.

Part of the reason for those rises is that the US trade deficit shrank sharply in October to its lowest level of the year as imports tumbled.

The trade gap in goods and services fell for the fourth straight month to a seasonally adjusted $43.5 billion, from a revised $44.2 billion in September, the Commerce Department said today.

14.51 Remember Nicolas Sarkozy's so-called snub of David Cameron, where the French president seemed to deftly avoid shaking the prime minister's hand (13.24)? Well, it seems Sarko might not have declined Dave's handshake after all. The Telegraph's Tom Chivers writes:

A sequence of screengrabs shows the pair walk past each other, Sarko with his hand out, and Cameron glides past him. It's brilliant: a tiny vignette of personal hurt and rivalry within the great game of diplomacy.

Unfortunately, it doesn't seem to be true.

The pair had shaken hands about three minutes earlier while waiting for the photoshoot complete with awkward, wincing shrug: the sort of thing you might do the morning after having a massive drunken row with a friend.

14.40 We're hearing more from David Cameron now. He says that membership of the EU is still in Britain's national interest, and that he'll support it as long as that remains the case. He also claims that Britain will retain some influence over decision making at the EU, despite our isolation over the treaty change:

The membership is in our interests and I've always said that if that's the case, I will support our membership. Britain's influence in the European Union will be maintained.

14.25 Finland could be joining the ranks of the EU awkward squad (it's a select crowd - only Britain in there at the moment).

The country's finance minister says it could withdraw its support for permanent eurozone bail-out fund if there is not a condition of unanimous voting placed on how it is used.

Last night, EU leaders agreed on the need for "qualified majority" to speed up decision making on bail-outs, to stop individual countries being able to veto rescues.

Jutta Urpilainen said:

As we are strongly committed to unanimous decision making, in practice that means we have two options. Either we keep to the original agreement that decisions are taken unanimously on the permanent mechanism, or Finland doesn’t participate in the permanent mechanism.

14.11 At 12.16, we wrote that a new set of draft summit conclusions shows that nine countries are ready to join the 17 members of the eurozone to draft a new intergovernmental treaty for deeper fiscal union. Here's the full statement from the euro area leaders - the key paragraph about the UK opting out is in the last paragraph on the last page:

Euro Area Leaders Statement

14.02 Festive cheer was alive and well in the summit, Mrs Merkel assures us. She said:

Everyone in the meeting wished each other Happy Christmas, and I would like to say the same thing to you.

14.01 Talking about the countries participating in the treaty, Mrs Merkel said:

As a European you think in terms of 27 countries and it would be very bizarre if i would appear here and say I want to make a treaty that does not include 27.

We've achieve what we think is correct and right for the euro.

I'm not in a bad mood, quite the opposite. I'm optimistic.

As a European of the 27 countries I would have been fine as well if Britain had said yes.

13.53 "Not everything will be solved with a quick fix solution," says Mrs Merkel. "This is going to grow over years." She added:

If we want to have a common currency we have to accept that European and common institutions have a degree of responsibility and duty

13.48 "Team spirit" was very clear, says Mrs M:

Over the evening last night it became clear that there's a lot of constructive desire. Overall it was tangible that the EU as far as it exists of countries that are not part of the eurozone, they want of course to accompany the process towards stability. This feeling of communality and team spirit was very clear.

13.46 Mrs Merkel is being quizzed on where the €200bn is going to come from that EU countries are going to provide in bilateral loans to the IMF to help tackle the debt. She says that €150bn could come from the eurozone countries.

13.42 Angela Merkel says she regrets that "Great Britain is not able to go along the same path".

13.40 More from Mrs Merkel. She said that "we're going to use the crisis as the opportunity for a new start and we're going to introduce a debt break" and commenting on the management of the crisis, she added:

Firstly we were delighted that the ECB and in particular its chairman, Mr Draghi will be supporting the EFSF with the ECB's expertise.

I believe this will be tremendous support for the EFSF. We're also going to increase the capital stock of the EFSF.

13.36 Angela Merkel is speaking at a news conference. The German chancellor said:

I know that over the last two days a lot of people have been looking to us... and I believe that we've made it quite clear that Europe has realised the seriousness of the moment.

We're resolved to draw conclusions from the mistakes of the past. We're drawing conclusions, we're gaining credibility step by step.

When I say we, I'm talking about the 17 countries that are part of the eurozone. Some countries will consult their national parliaments and they will support us with a positive spirit. There's only one country that has indicated its reservedness and that is Great Britain

It is the breakthrough towards a stability union. We want to have a high degree of commonality.

13.30 Herman Van Rompuy, head of the EU leaders' group, is speaking now - he's confirming that statement issued earlier - all 26 EU nations (no prizes for naming the odd one out!) are considering joining the treaty on closer fiscal integration.

13.24 The entente cordiale seems to be somewhat strained today. The Daily Mail has a story and video detailing how Nicolas Sarkozy apparently avoided shaking David Cameron's hand in Brussels. While Mr Cameron appeared to approach the French president with hand outstretched, Mr Sarkozy then seemed to swiftly swerve aside and wave to someone else. That left Mr Cameron to give Mr Sarkozy a pat on the shoulder instead. Awkward.

13.09 Fiona Govan writes from Spain that the country's secretary of state to the EU is trying to put a positive spin on events in Brussels:

Looking on the bright side commenting on Cameron's veto, he said it was regrettable not to have Britain on side it but "better a deal between 23 member states than nothing."

Or, as secretary of state for the EU, Diego López Garrido, "better a deal at 23 than nothing."

13.02 Not only is David Cameron defending British interests in Brussels, but he's apparently flying the flag for our national cuisine too. James Chapman of the Daily Mail has tweeted how the prime minister broke his fast this morning.

12.40 Christine Lagarde, head of the IMF, has issued a statement saying that the decisions taken by European leaders today are "an important contribution to helping address the crisis facing the euro zone and strengthening the global economic recovery". She welcomed progress in three "critical areas":

First, the agreement reached to enhance fiscal discipline and strengthen economic policy coordination in the euro zone.

Second, the decision to accelerate the entry into force of the European Stability Mechanism (ESM) treaty, which will help bolster the firewall against financial contagion.

Third, the commitment by EU member states to provide additional resources to the IMF of up to 200 billion euros (about 270 billion US dollar). These resources will enhance the IMF's capacity to fulfill its systemic responsibilities in support of its global membership--which is especially important given the ongoing economic slowdown and financial market tensions.

12.30 Looking ahead to Wall Street opening, the futures market is indicating a rise:

The Dow Jones is set to open up 0.9pc at 12,047 points, while the S&P 500 is expected to rise 1pc. In Europe, share prices have now picked up after the announcements from the EU overnight. The FTSE 100 is up 0.8pc at 5,529 points, the CAC has risen 1.9pc in Paris and the German DAX climbed 1.9pc.

12.28 Bruno Waterfield tweets from Brussels:

#eurozone: it's 3 speed, euro 17, 9 non-€17 and UK1

12.16 Looks like Britain is on its own. A new set of draft summit conclusions shows that nine countries are ready to join the 17 members of the eurozone to draft a new intergovernmental treaty for deeper fiscal union.

That would mean that Britain is the only one of the 10 non-eurozone countries in the EU not to agree to join the treaty change. Reuters reports that the draft conclusions say:

The Heads of State or Government of Bulgaria, Czech Republic, Denmark, Hungary, Latvia, Lithuania, Poland, Romania and Sweden indicated the possibility to take part in this process after consulting their Parliaments where appropriate

12.09 The British Bankers Association has been commenting on the summit's deliberations so far. Angela Knight, the organisation's chief executive, said:

We do not yet know the impact this new arrangement is going to have on the UK's ability to secure agreements on sensible regulation, but that is critical

The UK has most of the EU's financial business, but we have a minority of the votes. The City does business globally but pays its taxes here, so retaining a strong, vibrant, international finance hub here is good for jobs and our economy

11.53 Ireland has already raised the possibility of a referendum on building a eurozone fiscal union, and Robert Nisbet, Sky's Europe correspondent, tweets:

11.46 According to flashes appearing on Reuters, European Central Bank sources say that the bank's sovereign bond-buying remains capped at a maximum of €20bn per week. Sources also say that the outcome of the EU summit is in line with expectations and that there is no need to consider additional action now.

11.40 We continue our round-up of dispatches from Telegraph correspondents scattered across Europe. Henry Samuel writes with how the French papers have covered the treaty deliberations:

“The (French) President and the (German) Chancellor are determined not to be cornered by Cameron,” one Elysée source tells Le Figaro.

In an article headlined "Cameron's dangerous game," the Right-wing paper says the Prime Minister sparked exclamations of “unbearable, troublemaker” by “European allies” at the summit – presumably France – over his “ambiguous position”.

Le Parisien says: "Cameron once again takes up the path of confrontation with the EU".

11.27 Strong words from former Europe minister, Denis MacShane. He said that Britain might as well leave the EU now. The Labour MP for Rotherham said:

There is now little point in Britain staying in the EU. Bill Cash has won and I congratulate him and other Eurosceptics on their victory.

It is an historic turning point and Britain might as well get out now, as Europe's future will be settled without us. The 17 plus 6 will decide new rules which will govern trade in financial and other sectors and Britain will have to comply, like Norway or Switzerland, or give up market access.

11.20 And from Sweden, The Telegraph's man on the ground, Richard Orange, writes:

Swedish prime minister Fredrik Reinfeldt has given his backing to David Cameron's position, saying it would be "unreasonable" for a non-eurozone country to sign the treaty that was presented last night.

"It seems a bit odd because the whole text is written to make eurozone members submit to certain restrictions and do certain things," he told Sweden's TT newswire. :"A non-eurozone country can't reasonably sign up to that.”

Mr Reinfeldt said he still had to discuss Sweden's participation in the inter-governmental treaty with the national parliament, but hinted that Sweden, like the UK, would stand outside.

“Sweden, which isn't a member of the euro, does not want to tie itself to rules which are completely tailored for the eurozone,” he said.

11.16 Spain has reacted with shock to the failure to agree Europe-wide treaty changes. Fiona Govan, The Telegraph's Madrid correspondent, writes:

Spain’s newspapers went to print before news of the British veto of treaty change but online news, radio and television reports this morning are all leading with the story. The news has been met on the whole with a degree of shock and uncertainty over what it means for the future of the European Union and the immediate debt crisis. “Cameron chooses the path of confrontation”, the headlines scream.

The fracas has overshadowed the first big opportunity for PM-elect Mariano Rajoy to mark his territory when he gave a speech Thursday to EU leaders in Marseille, an event that turned few heads outside of Spain. Still failing to outline details of any real plans he sought to reassure European partners that he was committed to the Euro project and could enact the reforms necessary to keep Spain an integral part of it once he takes over the reins of government later this month.

11.10 Angela_D_Merkel might need to find a comfy chair for the European Union's newest member - Croatia. The country this morning signed a treaty with leaders including EU President Herman van Rompuy, German Chancellor Angela Merkel and European Commission President Jose Barroso to become the union's 28th member.

10.54 Angela_D_Merkel (no, not the real one) has been tweeting again:

10.52 Eurosceptic Tory MP, Mark Reckless, has welcomed David Cameron's move to veto EU treaty change as a "very significant development". He told the Today programme:

The Prime Minister has been as good as his word.

He said he would not agree to a new treaty unless he was able to safeguard the interests of the City. The other EU countries would not agree to safeguard the interests of the City and therefore David Cameron has said no.

I think this is a very significant change. All of us will need time to see how the institutions of Europe are going to move forward.

Nicolas Sarkozy was talking about a re-founding of the European Union. Now we see that is happening among between 23 and 26 countries and we are remaining outside that. That now gives us the opportunity to negotiate a new relationship with the European Union that is in our interests.

We need to look to negotiate bilaterally, in the same way that Switzerland does, to protect our interests. That is the way this appears to be developing and I think we need to do that to secure our own independence and make our own decisions in our own interests.

10.45 Ballot boxes at the ready. Ireland's minister for European Affairs, Lucinda Creighton, has said that the country may have to hold a referendum on building a fiscal union in the eurozone:

I would say it's 50-50 and we will be looking at the detail over the next couple of weeks

10.30 The EU leaders are holding a new round of talks now to try and salvage something from last night's extraordinary split, according to Brussels correpsondent for Feature Story News, Vanessa Mock. She tweets:

10.25 The Telegraph's James Kirkup says David Cameron has "swung the handbag" - what next for Britain in Europe?

Mr Cameron had warned he was ready to do this, but most in Britain and elsewhere had marked that down as the sort of thing leaders always say before summits. And if the demeanour of Mr Cameron and his team is anything to go by, they too weren't really expecting to have to swing the handbag with such force here.

Now, having proved that he is actually prepared to walk the eurosceptic walk as well as talking the talk, he has to send precisely the opposite signals. The emergence of the new euro-plus group will raise all sorts of warnings about a two-speed Europe and a "caucus" that drives through new EU rules and regulations harmful to British interests, not least the financial services Mr Cameron vowed to protect.

And Britain's place in an ad hoc out-group along with only Sweden, the Czech Republic and Hungary will lead to allegations of isolation and diminished British influence.

10.15 Boris Johnson, the London Mayor, who sparked uproar with his comments earlier in the week that the Government would be forced to hold a referendum on any EU treaty change has told BBC radio that David Cameron "played a blinder" in Brussels.

10.05 Perhaps unsurprisingly the Labour Party don't agree with Terry Smith's comment that David Cameron is as "isolated as somebody who refused to join the Titanic before it sailed."

Instead shadow foreign secretary Douglas Alexander has this to say:

David Cameron's isolation is a sign of weakness not of strength.

Britain this morning is more isolated than at any point in the 35 years of British membership of Europe.

It is not in Britain's national interest for decisions to be taken without us even at the table and it's a direct result of David Cameron spending more time negotiating with his own backbenchers than with our European partners.

09.59 Hark, a glimmer of economic hope. Britain's trade deficit narrowed at its fastest pace since records began in October, as exports hit a record high. The trade gap fell to £7.56bn from £10.2bn, the biggest narrowing since the series began in 1998, the Office for National Statistics said

09.53 Having deliberated well into the early hours of this morning, the European leaders are embarking on a second day of talks in Brussels. They are surely going to be in need of a large cup of coffee...

Here's what Angela Merkel had to say on her way into the meeting:

We made important decisions for the euro yesterday. It was about starting the fiscal and stability union. We have made good progress, especially with regards to the debt brake for all states that will be part of this new treaty and more automatic sanctions.

We are very happy that not just the euro states, but also a number of other states, will become part of this strong fiscal discipline: the Baltic countries, Poland very important, Denmark, Bulgaria, Romania and two more countries analysing this. I'm very happy with the result because we had to avoid a lousy compromise for the euro, and we have succeeded.

On Britain opting out of the deal, she added:

The British were never part of the euro, they had an opt out from the beginning, so we are familiar with the situation. We have started Schengen with a number of states and we have said in the text adopted yesterday that if the situation arises in which we can take it up in the treaties with all, as we have done with Schengen, then we will do it as soon as possible.

...David Cameron was at the negotiating table with us, we made this decision. We couldn't make a lousy compromise for the euro but we had to set up hard rules. ... that won't deter Europe from making joint decisions in many other questions for example when welcoming Croatia as our new member.

09.30 To recap, Britain has vetoed an EU treaty change on measures to resolve the eurozone debt crisis.

However the 17 eurozone nations plus six countries who hope to join the single currency have agreed to sign up to a new treaty that will introduce stronger controls over individual countries' finances.

Here is what they are signing up to:

- Eurozone states' budgets should be balanced or in surplus.

- Such a rule will also be introduced in eurozone member states' own national legal systems; they must report national debt issuance plans in advance.

- As soon as a euro member state is in breach of the 3pc deficit ceiling, there will be automatic consequences, including possible sanctions, unless a qualified majority of euro states is opposed.

Looking at the nitty-gritty of what was agreed last night in terms of financial measures to bolster the eurozone's ability to rescue indebted nations, here are the key points:

- EU countries agreed to provide €200bn in bilateral loans to the IMF to help tackle the debt, with €150bn of the total coming from the eurozone countries.

- The European Stability Mechanism (ESM), the permanent resuce mechanism due to come into force in July 2012, will be capped at €500bn (£423bn).

- The ESM will not get a banking license, as had been proposed by Herman Van Rompuy of the European Council, because Germany opposed it.

Mario Draghi, head of the European Central Bank, said the decision by 17 eurozone nations plus six who hope to join the single currency was a good step forward. He said:

It's going to be the basis for a good fiscal compact and more discipline in economic policy in the euro area members. We came to conclusions that will have to be fleshed out more in the coming days.

Christine Lagarde, head of the IMF, said "we can be very pleased at the result." At least someone left happy...

09.17 James Kirkup, The Telegraph's deputy political editor, has written that David Cameron's veto creates a new era for Europe and the coalition:

"Sometimes it is the right thing to do to say 'I cannot do that'." With that, David Cameron announced a new British relationship with the European Union, and a new era for the EU.

He also raised questions about the future of his Coalition with the pro-EU Liberal Democrats.

Almost every leader at the Brussels summit, except Nicolas Sarkozy of France, wanted to strike a deal to save the eurozone among all 27 EU members.

Mr Cameron said he was vetoing an agreement among all 27 EU members because he did not get the safeguards he wanted for the City.

09.04 Following the treaty veto, Terry Smith of interdealer broker Tullett Prebon, didn't mince his words. He told BBC Radio 4:

[The UK is] as isolated as somebody who refused to join the Titanic just before it sailed

08.59 Some flashes from Reuters on Angela Merkel's reaction to last night's negotiations:

RTRS - GERMANY'S MERKEL SAYS VERY SATISFIED AT AGREEMENT AT EURO SUMMIT, SAYS NOT A LOUSY COMPROMISE

RTRS - MERKEL SAYS VERY SATISFIED WITH SUMMIT DECISIONS, WORLD WILL SEE EU HAS LEARNED FROM MISTAKES

08.49 Watch David Cameron saying that Britain is better off out of the new treaty:

08.47 The Telegraph's Benedict Brogan has more on the political fallout of last night's EU-wide treaty failure and where it leaves Anglo-French relations (clue: not in a good place):

This morning's news will be a shock to those used to hearing British prime ministers threaten a veto but never use it. As William Hague said earlier, the Prime Minister has done exactly what he said he would do: block a proposal that threatens Britain. But where does it leave us?

For starters, Edward Leigh owes Mr Cameron an apology, and a grovelling one at that (yesterday, the Tory MP compared Dave to Chamberlain). Beyond that, all is uncertainty. His decision puts the Coalition under immediate strain. For Britain to step out of the European consensus, to set itself apart, is a blow to core Lib Dem beliefs. How will Nick Clegg react?

Mr Cameron was right to reject a deal designed by the French, for the French. At the heart of this dispute is France's desire to see Britain out of the EU, and the City marginalised.

That was why they loaded the package with elements Britain could not accept. Downing Street officials are clear about what the French are up to, and why the Prime Minister had no choice but to say non.

08.43 Angela_D_Merkel (not the real Angela, sadly) has tweeted:

08.38 Looking at what actually was agreed last night, rather than the political split between Britain and pretty much everyone else, Ed Conway, Sky's economics news editor makes a good point - the eurozone's debts are no closer to being dealt with. Via Twitter:

08.35 Reflecting that, bond markets have not taken the news of last night's summit agreements too well.

According to Reuters' data, yields on Italian 10-year bonds have risen back above 7pc - the danger level signifying a bail-out is on the cards. They've traded below that level for the last week on hopes the ECB could step in and buy large amounts of Italian debt.

But there is a caveat - rival financial data provider Bloomberg says the yield on Italian 10-year bonds is trading at 6.5pc. Not sure why this gap is occurring but we'll keep you posted...

08.34 The FTSE 100 is now feeling more sanguine - it's trading flat to slightly higher - up 0.1pc to 5,493. However the CAC is down 0.6pc in Paris and the German DAX is off 0.7pc.

Traders in London welcoming Cameron's defence of the City perhaps??

08.33 Bruno Waterfield, The Telegraph's man on the ground in Brussels, has filed a dispatch on the EU suffering its worst split history as David Cameron used the British veto to block eurozone treaty change after France and Germany opposed “safeguards” to protect Britain’s economy:

Britain was left isolated this morning with just three other countries, Sweden, Hungary and the Czech Republic, as an exultant Nicolas Sarkozy hailed a “historic” breakaway “euro plus” bloc that would pursue fiscal and economic union via a new treaty outside the EU.

The Prime Minister insisted that he had been prepared to support treaty change among all 27 of the EU’s members to allow the 17-strong eurozone to take measures to tackle its debt crisis and to enforce tough new fiscal rules for the single currency.

But after 11 hours of bad-tempered talks, Mr Cameron said that he had blocked the changes because France and Germany and refused to agree to a “protocol” giving the City of London protection from a wave of EU financial service regulations related to the eurozone crisis.

08.25 Current foreign secretary, William Hague, has been doing the rounds of the television and radio stations this morning. He told the Today programme that Britain had made "nothing like enough of an effort" to meet the UK's concerns in treaty negotiations. He denied that Britain was "isolated" and said Britain had "created world market confidence. We do that by controlling our own affairs".

08.20 Lord Owen, the former British foreign secretary, told Radio 4's Today programme: "We are still in the EU...but we're in a mess." He added that it was the first time that the British government had failed to achieve British objectives within the structures of the EU.

Tweeting on Lord Owen's comments, The Telegraph's Benedict Brogan said:

08.11 London traders have had their first chance to react to this morning's developments in Brussels:

The FTSE 100 has opened down 0.5pc has 5,455 points.

08.07 Ed Conway, Sky News' economics editor, tweets:

07.57 Sir Christopher Meyer, former British Ambassador to the United States and Germany, has argued in a Huffington Post blog that David Cameron is not isolated:

Since Major's demise, the British press have been deprived of the Britain-isolated story. Tony Blair finessed it by giving way when he thought that he was going to end up in a minority of one.

Now it's back with a vengeance and Pavlov's dogs are gleefully yapping. But, history rarely repeats itself and David Cameron is not a re-run of Thatcher's or Major's splendid isolation in Europe. As never before, the threat to the EU is existential; and the UK has a powerful interest in the euro's survival in one form or another.

Nor is Cameron actually isolated like his conservative predecessors. There are nine other EU countries who are not members of the Eurozone. They are Cameron's natural allies, if British diplomacy can be clever enough to enlist them.

07.56 Was it handbags at dawn in Brussels? Paul Waugh of Politics Home wonders:

07.54 China has expressed hopes that the measures decided by the European leaders to seal a new fiscal pact can stabilise markets and boost confidence. Reuters reports that a ministry spokesman, Hong Lei, told a briefing that:

The EU leaders' meeting will table an important decision, and we hope the measures in question will be able to stabilise the market, boost confidence and promote the integration of the European Union.

07.45 Nicolas Sarkozy said that Britain made "unacceptable" demands for exemptions from certain financial regulations in return for joining in the "fiscal compact". Apparently, a French source also said that Cameron is "like a man who goes to a wife swapping party without his wife". Ooh la la. The Telegraph's Benedict Brogan tweets:

@PoliticsFR French source tells @Telegraph Cameron 'like man who goes to wife swapping party without his wife'. On traduit comment? #€bordel

07.33 Bleary-eyed hacks resorted to playing card games during the night to keep themselves occupied as the talks dragged on. The Daily Mail's political editor, James Chapman, tweeted:

07.27 The euro slipped against the dollar and the pound this morning. The single currency was trading down 0.4pc or 0.5 of a cent at $1.3289 and down 0.2pc against the pound at 85.2p.

07.20 William Hague, the Foreign Secretary, has told the BBC that Britain will not give up any more of its sovereignty and that is why it is standing aside from a new treaty. He denied that this would result in a two-speed Europe and said that key decisions affecting Britain will still be made by all 27 EU members, including Britain.

07.11 Looking ahead to the market opening in London, David Jones of IG Index tweets that the FTSE is poised to fall:

06.56 More on what David Cameron had to say on the treaty talks. The Press Association reports that the Prime Minister was sanguine, saying he wished the eurozone well with its new treaty, but it was not for the UK without the safeguards he demanded. He added:

We wish them well because we want everyone to sort out their problems because we all need that [economic] growth.

He denied any deeply damaging rift as a result, saying:

There were strong disagreements but it was good-natured. People understood each other. That relationship will be maintained and will work well, but at the end of the day I made my judgment that it was not in Britain's interests [to take part]. I effectively wielded the veto.

06.41 This is the UK's protocol demand to the EU - obtained exclusively by The Telegraph's Bruno Waterfield in Brussels:

UK protocol demand to EU

06.30 Ratings agency, Moody's, has this morning downgraded the debt of BNP Paribas, Societe Generale and Credit Agricole, saying their creditworthiness was being hurt by the fragile operating environment for European banks. Moody's cut its ratings on the long-term debt of BNP and Credit Agricole by one notch to Aa3, while SocGen's long-term debt was cut by one notch to A1.

06.15 Chris Adams, the Financial Times' markets editor, tweets:

05.19 David Cameron has told a press conference:

What was on offer was not in Britain's interest ... so I didn't sign up to it.

Without protections for the single market and for other key British interests, without those safeguards it is better not to have a treaty within a treaty but to have those countries make their arrangement separately, that is what is not going to happen.

Britain's interest in the European Union, keeping markets open, free trade, selling our good and services with rules over which we have a major say, all those things are protected, they don't change.

But this new round of integration and special powers and surrenders of sovereignty for European countries and others that what to join the euro, they will be carried on outside the EU treaty. So we will not be presenting this treaty when it is agreed to our Parliament. It will not involve Britain.

We will insist that the EU institutions - the court and the commission - will work for all 27 nations of the EU. Indeed those institutions are established by the treaty and that is still protected.

The decisions taken here tonight all flow from one thing, the fact there is a single currency in Europe - the euro. Britain is out of it and will remain out of it. Other countries are in it and are having to make radical changes, including giving up sovereignty to try and make it work.

Those countries that signed this treaty and the agreements they made tonight ... we wish them well because we want the euro to sort out its problems to achieve the stability and growth that all of Europe, Britain included, needs.

04.55 Here are the main points of the agreement:

- Deal as based on a new "fiscal compact" and "on significantly stronger coordination of economic policies in areas of common interest"

- Euro zone states' budgets should be balanced or in surplus.

- Such a rule will also be introduced in euro zone member states' own national legal systems; they must report national debt issuance plans in advance.

- As soon as a euro member state is in breach of the three percent deficit ceiling, there will be automatic consequences, including possible sanctions, unless a qualified majority of euro states is opposed.

- The European Stability Mechanism (ESM), the euro zone's permanent bailout fund, is aimed to enter into force in July 2012; the existing European Financial Stability Facility (EFSF) will remain active until mid-2013. The overall ceiling of the EFSF/ESM of €500bn will be reviewed in March 2012.

- Euro area and other EU states will confirm within 10 days the provision of funds to the IMF of up to 200 billion euros in the form of bilateral loans to help it deal with the crisis.

- Voting rules in the ESM will be changed to allow decisions by qualified majority of 85 percent in emergencies, although that remains subject to confirmation by the Finnish parliament

04.30 Eurozone countries are planning to pump €200bn into an IMF warchest to fight the debt crisis, Sarkozy.

04.25 European Commission president Jose Manuel Barroso said he regretted that unanimity on treaty change had not been possible. He said:

Those that have today approved this new fiscal compact have stated that they want to put it as soon as possible into a new fully-fledged treaty, after revision of the current treaties.

Having seen it was not possible to get unanimity, it was the proper decision to go ahead at least with those ready to commit immediately. That includes all 17 in the eurozone, plus some who are not in the euro area but want to take part in this fiscal compact.

He insisted EU lawyers had already stated that it would be possible for the EU institutions to take a full part in policy issues involving the treaty changes, adding: "We would have preferred a unanimous agreement. This was not possible so I think the only alternative was to do it through this kind of intergovernmental treaty - but that does not mean that the EU institutions are not going to have a role.

We are determined if we can do it from legal point of view.

0.4.20 Asian markets have fallen sharply after the news and European markets are expected to join the sell-off today. The Nikke fell 1.5pc and the Hang Seng dropped 2.6pc.

04.15 Summit officials said the 27 leaders spent the first five hours of the first day of meeting discussing what options they faced in trying to restore eurozone stability and credibility - with Germany insisting that a treaty change was vital for the introduction of strict new rules and sanctions over eurozone members breaching debt limits.

The rules would not apply to the UK, even if all 27 agreed them - and a 27-way accord was described by Mr Cameron earlier this week as "the most comprehensive and credible way" to provide the necessary safeguards and restore confidence in the single currency.

But in heated and tense discussions over dinner he was warned that the 17 eurozone countries would go ahead with their own treaty revision if he pushed Britain's demands too far.

The talks turned to treaty change in earnest shortly after 1am Brussels time - ending at 5am with a breakdown of efforts by the 27 to stick together.

04.10 Bruno Waterfield tweets:

#eurozone: Sarko, 'We're not apologising', UK is the one who has created 2 speed Europe, inter-gov will be quicker, no referendums

04.05 Nicholas Sarkosy told a press conference that David Cameron had blocked a deal on crucial treaty changes. He said Britain had made "unacceptable" demands for exemptions from certain financial regulations in return for joining in the "fiscal compact" which is to be enshrined in the treaty change.

04.00 Good morning and welcome back to live coverage of the global debt crisis. The 27 EU nations have failed to agree Franco-German proposals for treaty changes. The 17 eurozone nations will forge ahead with a separate treaty.

Debt crisis live: archive