Europe divided on Friday in a historic rift over building a fiscal union to preserve the euro, with a large majority of countries led by Germany and France agreeing to move ahead with a separate treaty, leaving Britain isolated.
Twenty-three of the 27 leaders agreed to pursue tighter integration with stricter budget rules for the single currency area, but Britain said it could not accept proposed amendments to the EU treaty after failing to secure concessions for itself.
After 10 hours of talks, all 17 members of the euro zone and six countries that aspire to join resolved to negotiate a new agreement alongside the EU treaty with a tougher deficit and debt regime to insulate the euro zone against the debt crisis.
“Not Europe, Brits divided and they are outside of decision making. Europe is united,” Lithuanian President Dalia Grybauskaite said on arriving for the second day of a crucial crisis summit, the eighth this year.
German Chancellor Angela Merkel and French President Nicolas Sarkozy had wanted to get the whole EU to agree to change the Lisbon treaty so that stricter budget and debt rules for eurozone states could be enshrined in the bloc’s basic law.
But Britain, which is outside the euro zone, refused to back the move, saying it wanted guarantees in a protocol protecting its financial services industry.
Sarkozy described British Prime Minister David Cameron’s demand as unacceptable.
As a result, Sarkozy and Merkel said the intention was now to forge an intergovernmental treaty among the euro zone countries and any others that wanted to join.
They indicated that could be up to 25 countries in all, with only Britain and perhaps Hungary left outside the tent for now.
Sweden and the Czech Republic said they would consult their parliaments.
Herman Van Rompuy, the president of the European Council and the summit chairman, focused on the success in securing agreement for tighter fiscal limits, including the need for countries to bring budgets close to balance.
“It means reinforcing our rules on excessive deficit procedures by making them more automatic. It also means that member states would have to submit their draft budgetary plans to the (European) Commission,” he said.
On treaty change, Van Rompuy said the new treaty would involve the euro zone and at least six other countries, with two more waiting for a mandate to participate.
“An inter-governmental treaty can be approved and ratified much more rapidly than a full-fledged treaty change, and I think speed is also very important to enhance credibility,” he said.
But it could still take months of wrangling, with countries like Finland and Slovakia opposing a Franco-German drive to take decisions on future bailouts by a supermajority to avoid being taken hostage by a single small country.