European leaders have embarked on a mammoth effort to forestall the ruin of the single currency at what was seen as the most important Brussels summit in years, with France, Germany and the leaders of the eurozone lined up against David Cameron and his campaign to extract a price in return for agreeing to Europe's new "fiscal compact".
President Nicolas Sarkozy of France said the two-day summit was the EU's last chance to save the euro. Chancellor Angela Merkel of Germany, the central figure pushing a new punitive euro regime, voiced confidence that a satisfactory deal would be reached. Cameron insisted he wanted a "fair deal" for Britain and warned he would not hesitate to veto Franco-German proposals unless he got something in return.
In what was seen as a warning on behalf of Germany and France, Jean-Claude Juncker, the prime minister of Luxembourg and chairman of the Eurogroup, told Cameron to back off or face the prospect of being sidelined by a new treaty forged simply among the 17 eurozone countries.
European Central Bank chief Mario Draghi, whose institution is seen as crucial to moves to contain the sovereign debt crisis, shaved interest rates by a quarter point to 1% and sought to head off a new credit crunch by easing and extending the terms of its lending to European banks.
But Draghi dampened hopes that the ECB would play a role as the eurozone's lender of last resort by buying up the bonds of distressed sovereigns, saying that a speech he made last week had been "misinterpreted."
The high-stakes summit was expected to run into the early hours of Friday morning before resuming a few hours later. The focus on Thursday night was on how and whether to re-open the EU's Lisbon Treaty to establish a rigorous new euro stability pact with quasi-automatic penalties for fiscal sinners, more intrusive control of national budgets by EU bodies, and structural changes to entrench the eurozone as a much more powerful entity in EU decision-taking. Marc Rutte, the Dutch prime minister and a fiscal hawk, said: "We want sanctions that are as automatic as possible."
While there are splits between the 17 in the euro and the 10 outside, there are also divisions within the eurozone – between northern creditors and southern debtors and between large and small countries.
Particularly divisive is a Franco-German proposal to make agreement on bailouts swifter by subjecting them to an 85% majority vote in the eurozone. This would avoid the possibility of small countries blocking urgent action, as Slovakia sought to do with the bailout of Greece in October. But smaller eurozone countries are alarmed that they could easily be overruled while the big countries, such as Germany, France or Italy, would still be able to veto a bailout and six of the bigger countries voting together could impose decisions on the other 11.
Draghi said that Merkel's drive for a new regime enforcing fiscal rigour was the key to resolving the crisis, even if it could not be accomplished quickly. "A new fiscal compact, comprising a fundamental restatement of the fiscal rules together with the fiscal commitments that euro area governments have made, is the most important precondition for restoring the normal functioning of financial markets," he said.
EU officials said that moves were being plotted behind the scenes to enable European central banks to provide €150bn (£130bn) to the International Monetary Fund as part of a concerted effort to raise the firepower of the disparate bailout instruments.
Sarkozy, speaking at the gathering of centre right European parties in Marseille, sounded characteristically dramatic, warning that following the summit there would be "no second chance" to save the euro and that failure could trigger popular insurrection.
"Never has the risk of Europe exploding been so big. Europe is facing an extremely dangerous situation," he warned. "We must reform Europe, we must rethink Europe. If we don't have the courage to do it, the same causes will produce the same effect. If we don't have the courage to do it, the people will rise up against us."
By contrast, Merkel used the same platform to minimise expectations of any major breakthrough. "We'll be taking one further step to overcome this crisis. But it won't be ended with one fell swoop."
In what is arguably the most important EU summit in years, and expected to be acrimonious, David Cameron cut the loneliest figure at the gathering, a bystander and non-contributor in the effort to save the currency, but seeking to force separate British demands on to the agenda as the price for his assent to the new regime. Juncker said: "I don't want the United Kingdom setting aside entire pages to say the United Kingdom will not do what all the others have to do. I will not accept that.
"I would like a treaty deal that commits the 27 [EU states], but if it turned out that there were countries among the 27 unwilling to go along with us … we will do it with 17 [in the eurozone countries]."
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