David Cameron's use of his veto in Brussels to pull out of negotiations around amendments to the EU treaty puts the UK out on a limb.
The treaty would, if agreed, have created mechanisms to harmonise budget and tax rules across Europe and to enforce fiscal responsibility - keeping budget deficits in check - in all of the members of the eurozone. It would have used existing EU institutions to enforce the new rules.
The 17 eurozone countries will continue to negotiate a separate stability pact, and nine of the 10 EU members not in the single currency have chosen to endorse that process.
Hungary, the Czech Republic and Sweden initially indicated that they were considering joining Britain in opting out, but a draft of the summit's resolution shows that now only Britain stands outside the process.
"The Heads of State or Government of Bulgaria, Czech Republic, Denmark, Hungary, Latvia, Lithuania, Poland, Romania and Sweden indicated the possibility to take part in this process after consulting their parliaments where appropriate," the draft conclusions said.
"This new round of integration, and special powers and surrenders of sovereignty for eurozone countries and others that want to join the euro, they will be carried on outside the European treaty. We will not be presenting this new treaty, when it is agreed, to our parliament," Cameron said. "It will not involve Britain."
While the UK has avoided handing powers over its budgets and financial services regulation to the EU, its "unacceptable" demands - in the words of French President Nicolas Sarkozy - have left it outside what is potentially a powerful new centre of power in the eurozone and may not have achieved the goal of protecting the City of London.
That new group, with Germany its driving force, may form a new core, admittedly one that will struggle to drag its weaker members back to solvency and credibility, but one that will also be far more able to agree on measures to deal with the economic imbalances that built up under the current system.
An exemption from the financial services aspects of the new treaty was the principal demand of the UK in negotiations, as Cameron made protecting the City of London from any future financial transaction tax (FTT) and other legislation. However, the core EU nations, absent Britain, will now be able to agree on sweeping changes to tax and financial regulation, which would have inevitable impacts on the competitiveness of the UK banking sector.
Politically and economically stepping away from that euro core, despite the pressures of a growing domestic lobby against any devolution of sovereignty to Brussels, is a risky manoeuvre. The EU is the UK's main trading partner and a vital channel internationally for promoting the country's interests.
The former prime minister of Sweden, Carl Bildt, summed up the concerns in a tweet on Friday morning: "Worried that Britain is starting to drift away from Europe in a serious way," he wrote. "To where? In a strong alliance with Hungary."
Eurosceptics have been quick to hail Cameron's intransigence as a victory. Speaking to the BBC, London mayor Boris Johnson said that the prime minister had "played a blinder". Backbenchers in the Conservative Party had been vocally calling for repatriation of powers from the European Union and a renegotiation of the terms of Britain's membership in recent weeks.
Others warned that the UK now faced isolation.
Baron Roger Liddle, chair of the Policy Network and Tony Blair's former adviser on Europe, said that Cameron's gambit was "An act of self isolation, which was taken for purely political reasons to do with pressure inside the Conservative Party. I don't think it's anything to do with British interests whatsoever. I think that the argument about defending British interests is extremely weak."
This could mark "the beginning of the end for Britain in Europe," he added.
Cameron's main goal of protecting the City of London has also been missed, Liddle said. Because the UK is still in the EU, its is still subject to financial regulation decided by qualified majority across the 27 member states. Decisions made by the 23 countries within the new treaty
"He hasn't won any protections at all. He's in fact made the situation worse by alienating everybody," he said. "It's not in our national interests. It's stamping a Union Jack all over the City of London in order to appease anti-Europeans in the Conservative Party… when in fact what you need to do is to persuade the rest of Europe that the City of London is a European asset, not just a British one."
City figures said that the decision to pull out of treaty changed showed that the government was willing to tackle the flow of regulation that they claim has damaged competitiveness.
Tim Simmonds, head of financial services at the law firm Osborne Clarke, said that regulations covering various parts of the investment fund landscape, had proven particularly onerous.
"The regulatory-heavy and extra-territorial Alternative Investment Fund Managers Directive is likely to be hugely damaging to the institutional funds industry in the UK," he said in an email.
"The Directive is of Franco-Prussian descent, despite 90% of Europe’s hedge funds residing in the UK. European initiatives in the fields of venture capital, mortgages, insurance solvency requirements and investment services are all sources of onerous and poorly conceived regulation. All of this legislation is ultimately designed to pave the way for a single European financial services regulator, which is a significant step on the road to political union.
He added that the current uncertainty over the future of the euro makes this "a very apt moment to call into question whether to follow the trajectory of poor regulation that the UK has not hitherto had the political strength to do."
In a research note on Friday afternoon, Tullett Prebon's global head of research Tim Morgan echoed Liddle's sentiment, saying that the prime minister's decision may have put the UK on track to leaving the EU altogether. Or, he added, it might force the country into becoming even more committed to the European project.
Either, he said, would be better than "the indecision which has characterised the Anglo-European relationship since the 1970s."
Explaining that Friday's agreement might allow the eurozone to inflate away some of its debt and tackle some of the central contradictions in a monetary union without common economic policies, Morgan also warned that it might be too late.
"Where does this situation leave Britain?" Morgan said "We believe that Mr Cameron has broken with a long and discreditable tradition by acting on principle, and by putting British interests first. "
Of course, there are many potential drawbacks, including potential exclusion from decisions which necessarily will affect the British economy. But the reality is that the UK has always been a semi-detached member of the EU, and Mr Cameron deserves credit for making this explicit."
Britain has been resistant to the kind of deepening of the EU that is now underway, jealously guarding its sovereignty while agreeing to the accessions of countries on the fringes of the continent.
"Both Britain and Europe may benefit from David Cameron’s action," Morgan said. "The creation of the necessary centralised budgetary process may be easier without the UK sniping from the sidelines."
Politically, Liddle said, Britain may find itself even further isolated. Worrying, he added, "It's been shown to be a nonsense that there's a clear difference between the 10 "outs" and the 17 "ins". Most of the "outs", like the Poles, don't want to have anything to do with Britain if this is the position we're going to take. We are really isolating ourselves.
"Poland is a key "out" as far as we're concerned because it has power, but the fact is that they take a diametrically opposed view on the future to the British government. Sikorsky, the foreign minister has urged Germany to do more, not less, to save the euro.
"I do think that Britain is in a much weaker position this morning than yesterday, when David Cameron went to Brussels. I think that we have put ourselves quite deliberately outside the consensus. He's chosen to do that, and it will damage Britain's interests."
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