UK alone as EU agrees fiscal deal

All the countries of the European Union except the UK have backed a tax and budget pact to tackle the eurozone debt crisis, say European leaders.

Hungary originally said it would also remain outside the deal but has now changed its stance.

Other countries outside the 17-member eurozone have agreed, some pending consultations with their parliaments.

UK Prime Minister David Cameron had insisted on an exemption for the UK from some financial regulations.

The UK effectively used its veto to block an attempt, led by the French and Germans, to get all 27 EU states to support changes to the union's treaties.

Instead, eurozone members and others will adopt an accord with penalties for breaking deficit rules. It will be backed by a treaty between governments, not an EU treaty.

"In fact, 26 leaders are in favour of joining this effort. They recognise the euro is a common good," said European Council President Herman Van Rompuy.

David Cameron: It is better to have eurozone countries make arrangements separately

But Mr Cameron said he had not signed up to the deal because it was not in Britain's interests.

"Those countries that sign this treaty... we wish them well because we want the eurozone to sort out its problems, to achieve that stability and growth that all of Europe - Britain included - needs," he said.

German Chancellor Angela Merkel said the UK was the only country to have expressed reservations, but that Mr Cameron had recognised that a stable euro was in Britain's interest.

Of the nine other EU countries outside the euro, Hungary, the Czech Republic and Sweden have said they must consult their parliaments. Six others - including Denmark, Poland and Latvia - have agreed to join the new deal.

EU leaders aim to have the pact - known as a "fiscal compact" - ready to take effect by March.

Its main provisions include:

The Guardian says Britain is "facing isolation in Europe" after David Cameron vetoed a revision of the Lisbon treaty.

In the Economist, the Charlemagne's notebook blog describes the agreement - and Britain's non-participation - as Europe's "great divorce".

The Financial Times says EU leaders are "struggling to cope" with what it describes as "a profound split".

The New York Times describes the agreement as "not a perfect solution," because it could be seen as institutionalizing a two-speed Europe - but it says the pact could be ratified much more quickly than a full treaty amendment.

The BBC's Europe editor Gavin Hewitt, in Brussels, says the new pact will be quicker to set up than a change to the treaty but it may prove less rigorous.

But, he says, Europe has taken a big step towards closer integration, with binding rules over tax and spending, and sanctions against countries that overspend.

Nearly 10 hours of talks could not produce an agreement involving all member states.

French President Nicolas Sarkozy said the sticking point had been Mr Cameron's insistence on a protocol allowing London to opt-out on proposed change on financial services.

"We could not accept this," he said.

IMF chief Christine Lagarde welcomed the deal as "a really good step in the right direction".

But the announcement from Brussels failed to lift the markets, which are still hoping for more intervention by the European Central Bank (ECB), and European stocks traded slightly down on Friday.