Eurozone deal reached without UK

9 December 2011 Last updated at 10:41 GMT

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Nicholas Sarkozy said he would have preferred a treaty among all the members of the EU

The 17 members of the Eurozone have agreed to press ahead with a tax and budget pact to tackle a debt crisis.

But a German and French attempt to get all 27 EU states to back changes to the EU’s treaties was dropped after objections from the UK.

Prime Minister David Cameron had insisted on an exemption for the UK from some financial regulations.

Instead, at least 23 countries will adopt an accord with strict penalties for those who break rules on deficits.

“We wish them [eurozone states] well because we want everyone to sort out their problems because we all need that [economic] growth,” Mr Cameron said.

“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.”

The new tougher rules on spending and budgets will now be backed not by an EU treaty but by a treaty between governments. It will be quicker to set up but it may prove less rigorous, says the BBC’s Europe editor Gavin Hewitt in Brussels.

But, he says, Europe has taken a big step towards closer integration, with binding rules over tax and spending, and sanctions against countries that overspend.

Discussions on the details of the new fiscal arrangement are due to resume shortly.

Among the measures agreed on, leaders pledged to provide more money for the International Monetary Fund (IMF) to fund bailouts.

The deal though failed to lift the markets, which are still hoping for more intervention by the European Central Bank (ECB), and European stocks opened slightly down on Friday.

German praise

Nearly 10 hours of talks could not produce an agreement involving all member states. Instead, the 17 members of the eurozone will work on a separate deal outside EU treaties. They will be joined by at least six and possibly eight other countries.

The UK and Hungary will play no part in a new inter-governmental agreement, while Sweden and the Czech Republic will consult their parliaments before making a decision.

Mr Sarkozy said the sticking point had been Mr Cameron’s insistence on a protocol allowing London to opt-out on proposed change on financial services.

“We could not accept this,” he said.

Mr Sarkozy said the new deal should be agreed by March.

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David Cameron: It is better to have eurozone countries make arrangements separately

During the talks, eurozone leaders agreed to work on tough new budgetary rules, which envisage automatic penalties.

The main measures agreed to as part of the new agreement, called a “fiscal compact” include:

• a cap of 0.5% of GDP on countries’ annual structural deficits
• “automatic consequences” for countries whose public deficit exceeds 3% of GDP
• the tighter rules to be enshrined in countries’ constitutions
• European Stability Mechanism (ESM) to be accelerated and brought into force in July 2012
• adequacy of 500bn-euro (£427bn; $666bn) limit for ESM to be reassessed
• Eurozone and other EU countries to provide up to 200bn euros to the IMF to help debt-stricken eurozone members

The German Chancellor, Angela Merkel, praised the plan of action, saying it would contribute to securing the euro.

“I believe that after long negotiations this is a very, very important result because we have learned from the past and from mistakes and because in future [there will be] binding decisions, binding rules, more influence from the commission, more community and with that higher coherence.”

ECB chief Mario Draghi said the accord would lead to much more discipline in economic policy, calling it “a very good outcome for the euro area”.

Our correspondent says the immediate test will be whether this agreement persuades the ECB to act more aggressively in the markets and so lower the borrowing costs of troubled countries like Italy and Spain.