By Alex Stevenson Follow @alex__stevenson
Britain faces a new era on the fringes of Europe after David Cameron vetoed a potential EU deal to solve the eurozone crisis last night.
The prime minister refused to accept the imposition of a tax against the City during ten hours of intense talks in Brussels on Thursday evening and early Friday morning.
France and Germany, which had rejected the UK's request for a waiver of its plans to impose an EU-wide financial transactions tax, are now leading the way towards the signing of a new European intergovernmental treaty.
The 17 eurozone countries, joined by at least six others, are to commit to a new treaty outside the European Union which will be ratified by the middle of 2012.
"What is on offer isn't in Britain's interests, so I didn't agree to it," Mr Cameron said early this morning.
"Of course, we want the eurozone countries to come together and solve their problems. But we should only allow that to happen inside the European Union treaties if there are proper 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 arrangements separately. That is what is now going to happen."
European Union president Herman Van Rompuy said 26 EU leaders - all but Mr Cameron - had expressed an interest in becoming part of the "new deal".
Signatories to the upcoming treaty will be signing away their ability to control their economies without interference from the European Commission, which will pursue a "common economic policy".
They will face "reinforced" measures to rebalance their budgets if their structural deficits increase above 0.5% of GDP, as part of a series of measures which transfer significant aspects of sovereignty to the common cause.
German chancellor Angela Merkel put a brave face on the summit's outcome, which she claimed represented a "breakthrough" in the struggle to stabilise the euro.
She contrasted the "positive spirit" of countries which are "not yet or not part of the eurozone" with Britain, which Ms Merkel described as having "indicated its reservations".
"During the discussions I've had with David Cameron, he says that Great Britain is very much dependent on a stable euro because we are sitting in the same boat in Europe," she said.
"I believe that what we have created here constitutes a tremendous step towards a stable Europe."
The prime minister's firm stand against all other leaders on the continent will placate the views of Conservative eurosceptics, who had placed intense pressure on their party leader in the run-up to the summit.
Tory backbencher Louise Mensch tweeted: "The PM was absolutely right to refuse to allow the EU to gut Britain's financial services industry. Showing strong leadership."
Conservative MP Brandon Lewis posted on his Twitter feed: "A strong stance from David Cameron, a difficult time for Europe but the right decision for the UK."
But the prime minister's actions are proving controversial with the coalition's junior party, despite him receiving vocal support from deputy prime minister Nick Clegg.
"The demands Britain made for safeguards, on which the coalition government was united, were modest and reasonable," he said in a statement.
"They were safeguards for the single market, not just the UK... as a lifelong pro-European, I will continue to argue within government and with our European partners that where changes now occur, it is essential that the integrity of our open European single market is kept intact and that we work together on the long term problems of competitiveness within the EU on which millions of people's jobs depend."
Mr Cameron was unable to accept a treaty change affecting all 27 member states because it would have triggered a referendum which would have torn the Tory-Lib Dem consensus apart.
Chris Davies, the Lib Dems' chief whip in the European parliament, said the PM had "betrayed Britain's interests".
"In a world in which the influence of the old powers is diminishing by the day, Britain's prime minister has attacked his closest partners and left our country weaker and more isolated," he wrote.
"Today... Britain has taken a step towards irrelevance."
Foreign secretary William Hague insisted that Britain was not "separating" itself from the rest of the continent, however.
He told the Today programme: "What they've committed themselves to is to giving up more of their national control of their own budgets. Us standing apart from that is not an isolated thing, it is a very sensible thing."
Shadow foreign secretary Douglas Alexander told the same programme that Labour would also have vetoed the European proposals - after attacking Mr Cameron for having a "misconceived and shambolic negotiating strategy".
"I regret how badly David Cameron's negotiations strategy has left Britain down," he said.
"Britain is more isolated at any point since we jointed the European Community. This outcome is not a sign of strength from the prime minister, it is a sign of weakness."
Not all in Britain support the veto, despite the support offered by the opposition. Robin Hood Tax campaign spokesperson Robin Hillman said Mr Cameron had "forgotten that Britain is bigger than the Square Mile".
"Cameron has left the UK isolated to defend a casino banking business model that led us in to the last financial crisis - a crisis that cost the UK at least £1.8 trillion according to the Bank of England," he commented.
The Italian government now faces five-year borrowing costs of over seven per cent, viewed as a critically punitive threshold. Spanish bond yields also increased.
Asian financial markets also reacted negatively to the news that the deal had not addressed the immediate problems of the eurozone crisis, but the FTSE remained broadly stable in early trading.
In the longer-term the UK's diplomats face a struggle to calm continental anger against what many, especially the French, view as a British 'betrayal' at a time of great need.
"We can't have a waiver for the UK because in our view it would have undermined a lot of what we've done regarding the financial sector," Mr Sarkozy said, adding that the UK's approach was "unacceptable".
The Financial Times newspaper quoted one senior EU official as saying: "This is going to cost the UK dearly. They have antagonised everyone."