Measures to tackle the crisis in Europe will continue without the UK after David Cameron vetoed a treaty change.

Mr Cameron said it was not in Britain’s interest “so I didn’t sign up to it”.

But France’s President Sarkozy said his “unacceptable” demands for exemptions over financial services blocked the chance of a full treaty.

Of the 27 EU members Britain and Hungary look set to stay outside the accord, with Sweden and the Czech Republic having to consult on it.

Nearly 10 hours of overnight talks could not produce an agreement involving all member states. A full accord “wasn’t possible, given the position of our British friends”, President Sarkozy said, in the early hours of Friday morning.

The BBC’s political editor Nick Robinson said the consequences “could scarcely be greater for Europe and for Britain’s relationship with Europe”.

Mr Sarkozy said the eurozone countries would sign an intergovernmental accord aimed at stabilising the currency in the face of the debt crisis, plus any other EU members that wanted to join.

Speaking at a news conference following the meeting, he said: “The countries that have remained outside are Hungary and Britain, and the countries that have to consult with their parliaments are the Czechs and the Swedes.”

Mr Cameron told a news conference: “We want the eurozone countries to come together and solve their problems. But we should only allow that to happen within the EU treaties if there are proper protections for the single market, for other key British interests.

‘Coalition breaker’

“Without those safeguards it is better not to have a treaty within a treaty, but have those countries make their arrangements separately.

“It was a tough decision but the right one.”

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.

He said the exemptions Britain proposed were unacceptable because a lack of sufficient regulation had caused the current problems.

“We were not able to accept (the British demands) because we consider quite the contrary – that a very large and substantial amount of the problems we are facing around the world are a result of lack of regulation of financial services and therefore can’t have a waiver for the United Kingdom,” he said.

The head of the European Central Bank, Mario Draghi, said the planned accord would lead to much more discipline in economic policy.

But the BBC’s Nick Robinson said there would now be a series of “angry rows and legal challenges about what this new euro club within a club can and can’t discuss, and whether it should be allowed to use EU resources and officials”.

Our correspondent said the safeguards for the City of London which Mr Cameron fought for but didn’t win would also be the focus of a “protracted fight”.

“Many eurosceptics will now demand a wholesale renegotiation of our membership of EU and a referendum on it – something which would be a coalition breaker.

“This veto is not the end of something, it is the beginning of a story whose end is quite unpredictable,” he said.

Good deal

European Commission President Jose Manuel Barroso said he regretted that unanimity on treaty change had not been possible. But he added that it was the “proper decision to go ahead at least with those ready to commit immediately”.

Foreign Secretary William Hague has denied that Britain would no longer be at the “top table” of talks on issues that would affect the UK.

He said the UK would not be “outside any club” because on so many other economic and foreign policy matters it led the way.

An earlier 45-minute meeting between David Cameron, the French president and the German chancellor broke up without agreement.

Mr Sarkozy and Mrs Merkel have called for much closer co-operation among eurozone members, including budgetary oversight, common corporation and financial transaction taxes.

Speaking before the summit, Mr Cameron he said he would have “no hesitation” in vetoing a proposed new European Union treaty if it did not offer a “good deal” for the UK.

The prime minister said he had two aims: stability for the euro and protecting Britain’s interests.

BBC News