BRUSSELS - European Union leaders banded together Friday to back tighter budget policing in a desperate bid to save the eurozone, with Britain left isolated after it vetoed a new EU treaty.
After years of foot-dragging on deepening integration, 26 of the 27 EU states signalled their willingness to join a "new fiscal compact" to resolve the crisis threatening to crack apart the monetary union.
But the deal came with a heavy political price when non-euro Britain resisted a Franco-German drive to enshrine new budget rules in a modified EU treaty.
"The British were already not in the euro, and in that respect, we are used to this situation," said German Chancellor Angela Merkel.
Merkel said she was "very pleased" most had agreed on the pact, which includes plans to impose near-automatic sanctions on debt and deficit delinquents.
"We have learned from the mistakes of the past," she said as EU leaders wrapped up two days of marathon talks.
Some leaders hope the pact will convince the European Central Bank to drop its reluctance to use its full arsenal against the crisis after ECB president Mario Draghi called for a "new fiscal compact" last week.
Draghi dubbed the summit decisions a "very good outcome" for the eurozone.
Many analysts see the ECB, with its power to print money, as the single currency's best hope after eurozone leaders struggled to boost the firepower of their bailout fund to one trillion euros ($1.3 trillion).
The 17 eurozone countries signed up to the pact while nine other EU nations "indicated the possibility to take part in this process" after consulting their parliaments, EU leaders said in a statement.
Hungary had originally voiced reluctance, while Sweden and the Czech Republic were undecided.
The new deal, to be adopted by March through an intergovernmental agreement, was put to the entire 27-nation bloc in the interests of maintaining unity.
"Except for one, all are considering participation," said EU president Herman Van Rompuy. "It is unfortunate that we missed the chance to have a full-fledged treaty change, but having said that we will make the best of it."
French President Nicolas Sarkozy said British Prime Minister David Cameron's bid to halt ongoing EU efforts to curb the City of London's huge financial services sector was "unacceptable".
Italian Prime Minister Mario Monti agreed and added that Britain had "shut itself out" and now faced "certain isolation".
Cameron argued that since London could not secure safeguards for its vital financial sector, "it is better to be on the outside."
He later told British broadcasters: "We are not being excluded, we are in the European Union, we're a leading member of the single market."
A square mile in central London is home to 75% 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.
European stock markets closed higher on news of the deal.
London's FTSE-100 index of top companies was up 0.83%, the Paris CAC-40 jumped 2.48% and the Frankfurt DAX-30 was up 1.91%. Milan soared 3.37%.
US stocks also closed on solid gains: the Dow Jones Industrial Average was up 1.55%; the broader S&P 500 jumped 1.69%; and the tech-rich Nasdaq Composite gained 1.94%.
The accord, which is to include automatic sanctions that can only be blocked by a majority of powerful states, aims to end past practices of overspending responsible for the two-year debt crisis ravaging Europe.
Officials said they would have to iron out complex legal issues posed by an intergovernmental arrangement since the institutions would police budgets. The European Commission and the EU Court of Justice represent all 27 states.
While the leaders split over treaty changes, they pledged to pump 200 billion euros into IMF coffers to help the eurozone, which is struggling to boost its own rescue fund to one trillion euros.
The ECB would act as an agent for the bailout fund, the European Financial Stability Facility (EFSF).
The EFSF's successor, the European Stability Mechanism (ESM), will come into force earlier than first mooted in July 2012, with a lending capacity of 500 billion euros.
The head of the Bank of France, Christian Noyer, said the situation did not justify a greater intervention by the ECB.
"There is no need for something more massive," said Noyer, who also sits on the ECB's governing council.
And in Washington, White House spokesman Jay Carney welcomed developments.
"There has been some progress and that's a good thing," he said.
A German-led drive to make the private sector accept losses in future rescues was abandoned.
But Germany won other battles, notably when EU leaders dropped the idea of pooling debt by issuing joint eurozone bonds.