EU leaders agreed stricter budget rules for the euro zone on Friday, but failed to secure changes to the EU treaty among all 27 member states, meaning a deal will instead have to involve just euro zone states and any others that want to join.
After 10 hours of talks there was little concrete progress among the leaders, apart from their commitment to work towards a new "fiscal compact" -- the term used for a tougher deficit and debt regime to insulate the euro zone against the debt crisis.
European Central Bank President Mario Draghi called the decision a step forward for the "fiscal compact" he has said is necessary if the 17-nation euro zone is to emerge stronger from two years of market turmoil.
"It's going to be the basis for a good fiscal compact and more discipline in economic policy in the euro area members," Draghi said as he left the summit. "We came to conclusions that will have to be fleshed out more in the coming days."
In the run-up to the summit, Draghi's use of the term "fiscal compact" had spurred hopes that the ECB would be prepared to engage in massive buying of bonds from distressed euro zone states, an interpretation he subsequently questioned.
German Chancellor Angela Merkel and French President Nicolas Sarkozy had wanted to get the whole EU to agree to change the Lisbon treaty so that stricter budget and debt rules for eurozone states could be enshrined in the bloc's basic law.
But Britain, which is outside the euro zone, refused to back the move, saying it wanted guarantees in a protocol protecting its financial services industry. Sarkozy described British Prime Minister David Cameron's demand as unacceptable.
As a result, Sarkozy and Merkel said the intention was now to forge an intergovernmental treaty among the euro zone countries and any others that wanted to join. They indicated that could be up to 25 countries in all, with only Britain and perhaps Hungary left outside the tent for now.
"This is a summit that will go down in history," said Sarkozy. "We would have preferred a reform of the treaties among 27. That wasn't possible given the position of our British friends. And so it will be through an intergovernmental treaty of 17, but open to others."
Herman Van Rompuy, the president of the European Council and the chairman of the summit, focused on the success in securing agreement for tighter fiscal limits, including the need for countries to bring budgets close to balance.
"It means reinforcing our rules on excessive deficit procedures by making them more automatic. It also means that member states would have to submit their draft budgetary plans to the (European) Commission," he said.
On treaty change, Van Rompuy said the new treaty would involve the euro zone and at least six other countries, with two more waiting for a mandate to participate.
"An inter-governmental treaty can be approved and ratified much more rapidly than a full-fledged treaty change, and I think speed is also very important to enhance credibility," he said.
In a meeting billed as a last chance to save the euro, with financial markets unconvinced by policymakers' efforts to tackle the region's problems so far, the leaders also took several critical decisions on the permanent bailout fund, the European Stability Mechanism, which will come into force in July 2012.
It was decided that the ESM's capacity would be capped at 500 billion euros ($666 billion), less than had been suggested was possible before the summit, and that the facility would not get a banking license, as Van Rompuy originally had proposed.
It also was agreed that EU countries would provide up to 200 billion euros in bilateral loans to the International Monetary Fund (IMF) to help it tackle the crisis, with 150 billion euros of the total coming from the euro zone countries.
"We can be very pleased at the result," IMF Managing Director Christine Lagarde said as she left the summit.
Markets appeared to be less upbeat, with shares and commodities falling ahead of the outcome, while the euro remained under pressure on doubts Europe really has found a credible plan to solve the debt crisis.
Cameron's decision to stay out of the treaty-change camp could spell problems for Britain, although it was expected to find favor with the increasingly vocal eurosceptic wing of his Conservative party initially.
The danger is that if a large majority of EU countries do push ahead with deeper integration, it could involve changes to the single market and financial regulation, both of which could have a profound impact on the British economy.
"Cameron was clumsy in his maneuvering," a senior EU diplomat said. It may be possible that Britain will shift its position in the days ahead if it discovers that isolation really is not a viable course of action, diplomats said.
At the same time, if Britain does stay out, not only could it mark an irrevocable split with the European Union, which it joined nearly 40 years ago, but it will leave the rest of the EU and euro zone to institutionalize a 'two-speed' Europe.
"One step forward, two steps back," Alan Clarke, UK and euro zone economist at Scotia Capital, said before the first day of summit talks concluded. "The euro zone leaders might as well not bother. Pack their bags, go home, enjoy the weekend and do their Christmas shopping."
The new ECB chief said his recent remark that "other elements" might follow if euro zone leaders agreed to seal tougher new budget rules had been overinterpreted as hinting the bank could step up bond purchases.
Earlier, the plight of Europe's banks was thrown into sharp relief. The European Banking Authority told them to increase their capital by a total of 114.7 billion euros, significantly more than predicted two months ago.
A Reuters poll of economists found that while 33 out of 57 believe the euro zone will probably survive in its current form, 38 of those questioned expected this week's summit would fail to deliver a decisive solution to the debt crisis.