French President Nicolas Sarkozy hit out at David Cameron's "unacceptable" demands following a night of difficult talks in Brussels.

After clashing with eurozone leaders over exemptions for City of London banks and financial services, the prime minister pulled out of the talks over the future of the beleaguered currency.

Vetoing the treaty change, the prime minister told the press that it was not in Britain's interest "so I didn't sign up to it".

Sarkozy hit back, criticising Cameron's intransigence on the issue of the financial regulation for Britain's banks.

"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," said the French leader.

Alongside Britain, Hungary Sweden and the Czech Republic look likely to demur.

According to The Telegraph, the "bad-tempered talks", which lasted for more than 10 hours, resulted in deadlock, with Sarkozy quipping that an agreement "wasn't possible, given the position of our British friends".

Speaking after the breakdown of talks, Cameron explained his reluctance to go along with the accord: "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.

"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," he said.

Following the collapse of negotiations, German Chancellor Angela Merkel backed a new deal for the core eurozone countries. "I have always said, the 17 states of the eurogroup have to regain credibility," she said. "And I believe with today's decisions this can and will be achieved."

Speaking earlier to a group of centre-right parties in Marseille, Sarkozy stepped up the rhetoric, warning that the risk of the disintegration of the eurozone had "never been greater", adding: "If we don’t reach a decision, we won't get a second chance."

Now it looks all but certain that the 17-nation eurozone countries, along with at least five nations outside the currency, will forge ahead with a separate "fiscal pact". Experts remain divided over the long-term economic consequences for the UK and the short-term political consequences for the coalition following the split.