EU treaty change sinks in debt summit clash

French President Nicolas Sarkozy labelled "unacceptable" Friday a set of conditions imposed by David Cameron   Feuding European Union leaders failed Friday to agree a new treaty to tackle the debt crisis and instead decided to work on a separate pact for the eurozone, leaving Britain out in the cold.
The clash between non-euro Britain and France overshadowed a pledge to pump 200 billion euros ($267 billion) into IMF coffers, as leaders scrambled to meet a failed trillion-euro target after the ECB warned it will not jump-start rescue funding.
As the leaders attempted to appease the markets, French President Nicolas Sarkozy said the European Central Bank (ECB) had been handed control over bailout funds management.
EU president Herman Van Rompuy also said that a German-led drive to impose private-sector losses on Greek bondholders had been a mistake that had backfired, and would not be repeated.
This policy, which he admitted had had "a very negative effect on the debt markets" was "officially over," he declared.
World leaders from US President Barack Obama to Russia's Dmitry Medvedev still want to know how Europe would douse a fresh debt fire if Italy or Spain need bailing out.
And Asian markets fell on Friday over fears that Europe's leaders would not come up with a so-called big bazooka to end the crisis, with Tokyo down 1.48 percent, Sydney losing 1.82 percent and Seoul shedding 1.97 percent.
Leaders did give loose backing to a new "golden rule" intended to bring down debt across the eurozone for the longer term.
But six weeks after irritation boiled over at the previous EU summit, Sarkozy labelled "unacceptable" a set of conditions imposed by British Prime Minister David Cameron for London to back full EU treaty change.
Prime Minister Donald Tusk of current EU chair Poland had warned beforehand that failure to convince Britain to sign up would mean the "coffin" for post-WWII EU integration.
 Cameron said he took a "tough but good" decision to block EU-wide changes sought by France and Germany as the surest way to resolve the eurozone debt crisis.
"Where we can't be given safeguards, it is better to be on the outside," said Cameron, who failed with a bid to secure as way of concession a halt of ongoing EU efforts to curb the City of London's huge financial services sector.
After the summit of all 27 leaders ended at around 5:00 am (0400 GMT), Sarkozy said a deal among all member nations "wasn't possible taking into account the position of our British friends."
He added: "In order to accept treaty revision among the 27 EU states, David Cameron asked us -- something we all judged unacceptable -- for a protocol to be inserted into the treaty granting the United Kingdom a certain number of exonerations on financial services regulations.
"We could not accept this, since we consider, quite on the contrary, that a part of the world's woes stem from the deregulation of the financial sector," Sarkozy added.
"If we had accepted a derogation for the United Kingdom, that would mean to throw into question a large part of the very necessary work done to regulate financial services."
A square mile in central London is home to 75 percent of Europe's entire financial services industry, but the British government is resisting French and German moves to impose a financial transactions tax, as well as new regulations controlling trading.
Cameron had already warned in an article in The Times of London this week that Britain could challenge the right to put EU institutions to work on shoring up the euro -- potentially at the expense of its neighbour but partner in the world's biggest border-free market.
The European Commission and the European Court of Justice "belong to all EU states and their use outside the treaty of the 27 would clearly require safeguards", Cameron stressed.
A senior EU official said that "legal advice was sought during the discussions".
The row took any shine off tentative steps to re-focus the EU's crisis response after months in which a succession of ideas have failed to spare the eurozone's weakest states from taking fresh hits on bond markets.
German Chancellor Angela Merkel maintained that what matters is how the 17 eurozone states go about regaining credibility.
"I think that this can happen, will happen, with today's decisions," she said.
Van Rompuy said that the 17 member states that share the euro, plus six others, would ink an accord to make greater discipline legally binding.
Alongside Britain, Hungary will remain on the outside, while Sweden and the Czech Republic are still considering their positions.
Difficult talks began on a sour note when European Central Bank president Mario Draghi sent markets falling when he said hoped-for ECB action to buy up the sovereign bonds of debt-wracked countries was "limited" and "temporary."
Markets have been looking to see how European Union leaders would come up with a promised trillion-euro emergency firewall to save Italy or Spain if they became sucked in like Greece and others beforehand.
Part of a long-term "fiscal compact" he wanted to see pointing towards more integrated tax-and-spend policies across the eurozone, the deal to demand "balanced" budgets was only agreed "in principle" but Draghi welcomed the decisions taken overall as a "very good outcome" for the euro area.