Cameron vetoes EU treaty changes to save the City

The prime minister now risks political isolation after forcing the most dramatic shake-up of the EU in decades because he was unable to win guarantees over policy issues on the financial services sector and the single market.

At least 23 of the 27 member nations are now attempting to form their own treaty which will introduce stronger economic sanctions in a bid to restore single market stability and credibility. The UK and Hungary will definitely be outside of the new grouping in Europe, while the Czech Republic and Sweden will consult their parliaments before making a decision.

Cameron wished the eurozone well with its new treaty at a dawn press conference following 10 hours of talks, but said it was unacceptable to the UK because the safeguards he demanded were not on offer. The prime minister said: “I had to pursue very doggedly what was in Britain’s interests, which is very difficult in a room where people are pressing you to sign up to things because they say it is in all our interests.”

He said it was in Britain’s interests to win guarantees which would ensure the UK’s voice in crucial policy issues on the single market and the financial services sector would not be diminished, in return for supporting a 27-nation treaty change to bring in a new “fiscal compact”.

France and Germany are now leading the move to set up a separate treaty to achieve their aims after Cameron did not back the treaty. Cameron said the decision to create a new, separate treaty instead of writing a “treaty within a treaty” did not leave the UK isolated. The prime minister wished the eurozone well with its new treaty, but said it was not right for the UK without the safeguards he demanded.

Cameron denied a damaging rift had formed 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.”

French president Nicolas Sarkozy said Cameron had made “unacceptable” demands for exemptions from some financial regulations in return for signing up to the “fiscal compact”. Sarkozy said: “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.”