BRUSSELS -- At a crucial eurozone summit in Brussels, European leaders worked into the early hours of Friday morning as they hammered out a deal they hope will stave off a eurozone collapse and create an anti-crisis framework for the future. But the agreement failed to find unanimous support.
"After long negotiations I think we reached a very important result," said a relieved Angela Merkel after talks that wrapped up at around 5 a.m. in Brussels. The German chancellor added, "The 17 eurogroup states have to win back credibility, and I think we can do that with the decisions reached today."
A majority of European leaders hashed out a deal on a new intergovernmental treaty that will strengthen fiscal integration, requiring member states to surrender some degree of sovereignty to a central European authority. It is a plan clearly based upon proposals from the eurozone's biggest and most powerful members, Germany and France.
But what was heralded as a major success for Europe and a boon for international markets was marred by the deal's largest critic — Britain. Prime Minister David Cameron flatly refused to sign off on the agreement, telling reporters in Brussels that he could not offer his stamp of approval because the new treaty was not in Britain's interest.
"We're not in the euro and I'm glad we're not in the euro," said Cameron to reporters early Friday morning. "We're never going to join the euro and we're never going to give up this kind of sovereignty that these countries are having to give up."
At a press conference on Friday afternoon, European Council President Herman Van Rompuy said 26 of the 27 European Union states appeared to favor the deal, with Hungary, Sweden and the Czech Republic's leaders ready to take the plan to their national parliaments before agreeing to binding legislation on the European level.
"Of course, we would have preferred a unanimous agreement," said European Commission President José Manuel Barroso.
Britain's refusal to go along with its close allies Germany and France has driven a bitter wedge between the two sides and could threaten the stability of the union and its embattled currency.
Prime Minister Cameron's demands, which include freeing Britain from some of the financial market regulations listed in the new treaty, were labeled "unacceptable" by French President Nicolas Sarkozy, who said the stance did nothing to solve the problems of the global fiscal system.
"If you want to be able to opt-out, to not be in the euro but participate in all decisions of the euro . . . and on top of that criticize it, that's not possible," Sarkozy said on Friday.
Karel Lannoo, chief executive and financial markets analyst at the Brussels-based think tank the Centre for European Policy Studies (CEPS), said that the UK had shot itself in the foot by refusing to sign up to a new EU treaty involving all 27 member states.
"It is thanks to Europe that London has got so much business. Fifty percent of Britain's trade is with Europe," said Lannoo. "If the UK steps away from this, the long-term consequences will be extremely grave."
On Friday, the failure to bring Britain on board to forge a unanimous decision rattled markets, the euro dropping to a one-week low against the dollar in early trading.
"I wouldn't wake up this morning as an investor and be very satisfied," said Bert Van Roosebeke, an economist from the Center for European Policy in Freiburg, Germany. "The details of what exactly has been agreed are very unclear. But what we know is, it's not a revolution."
A sense of urgency has dominated the talks, which began with a working dinner on Thursday evening and could stretch into the weekend. European officials are scrambling to come up with a plan that will ease investor anxiety and halt the euro's downward spiral while solving the eurozone's woes.
What started as a debt crisis in Greece two years ago is now threatening to engulf the entire currency union: Greece, Portugal and Ireland have already received massive bailouts, and the rescue fund that was meant to serve as the solution — the European Financial Stability Facility, or EFSF - is already running short of money. Now, Italy is teetering on the brink, and analysts say its collapse would likely spell an end to the eurozone.
Ulrich Kater, the chief economist at Germany's DekaBank in Frankfurt, said investors are expecting different solutions than the ones being proposed by Europe's politicians.
"There are definitely different speeds between financial markets and European policies," said Kater. "Financial markets tend to like a sudden solution in the form of more credit, a big credit pool, perhaps through the ECB or IMF. But this is not the approach of European politics."
At a meeting of European conservative leaders in Marseille before the summit began, Sarkozy warned that time was running out. "Never have we faced a greater risk of Europe exploding," he said.
Even the Pope was praying for the euro at a ceremony to celebrate the immaculate conception, calling on the Virgin Mary for support in what he called a "difficult time" for Italy, Europe and the world.
And while Germany and France for the most part succeeded in their efforts to push ahead with treaty changes, analysts are warning that the solution will face stern tests in the coming days and weeks — on both European and national levels.
"The first question is, is it legal on a European level? Is it breaching European law? Because if that were the case you can forget about the whole thing," said Van Roosebeke. "If it's not breaching European law then you have to ask yourself the question in every single country, is this compatible with my national constitution?"
Analysts say the prospect of clearing national legal hurdles strikes fear in the hearts of Europe's staunchest advocates. Some of the 23 member states that agreed to strict European oversight will have to hold referendums at home, allowing their citizens to have the final say.
But referendums have been a thorn in the European Union's side in the past: the Irish voted down the Treaty of Lisbon in 2008, throwing the European project into doubt until it was finally ratified a year later. A similar reaction now, say analysts, could prove disastrous for the euro on the markets. Still, Ireland could be gearing up for another battle.
"There is now almost visceral opposition to any changes which would strengthen Europe's powers over Ireland," said Ray Kinsella, professor of economics at University College Dublin. "The dash for political union without democratic legitimation is in danger of Balkanizing the EU. We're putting European solidarity at risk."
Somaskanda reported from Berlin. Ruby Russell contributed.