British Prime Minister David Cameron provoked a furious backlash by Conservative Eurosceptics after he beat a retreat over his opposition to the agreement to enforce budgetary discipline in the eurozone.
Tory MPs who hailed him as a hero last month when he vetoed a European Union-wide treaty to save the euro turned their fire on the Prime Minister after he watered down his objections to the "fiscal compact". His critics claimed the gains he made last month had now been lost.
At the time, Cameron insisted that other EU nations could not use bodies such as the European Court of Justice (ECJ) to enforce fines on euro members who breach deficit limits. He feared this could harm British industry by eroding the single market.
But at another EU summit in Brussels yesterday, Cameron nodded through the agreement - although Britain will remain outside it. The Czech Republic also refused to sign up, leaving the UK in a minority of two in the 27-nation bloc.
Another threat to the 25-strong agreement emerged when Nicolas Sarkozy, the French President, said his country was unlikely to ratify it before the presidential elections this northern spring.
Denying a climbdown, Cameron said after the meeting: "We don't want to hold up the eurozone doing whatever is necessary to solve the crisis as long as it doesn't damage our national interests."
He insisted that the agreement among the 25 would not undermine the single market. The Prime Minister said: "There are a number of legal concerns about this treaty. That's why I reserved the UK position on it. We will only take action if our national interests are threatened."
However, there is little prospect that the UK will take legal action - not least because the case would be heard by the ECJ itself, which normally rules in favour of European integration.
Philip Davies, a Eurosceptic, warned the new stance would make the Prime Minister look more like John Major than Margaret Thatcher. "We saw in the opinion polls how popular he was in December. He would be equally unpopular if the British public thought he was going to backslide from that position," he said.
Douglas Carswell, another Tory Europhobe, said: "I don't see how the veto is really a veto if we allow the fiscal union to form, and then find ourselves subject to the EU institutions being used to govern that. "We will find that for all the talk of a veto, we find ourselves hauled into this process."
The treaty is designed to stop overspending in the eurozone and put an end to the bloc's crippling debt crisis. EU leaders also pledged to stimulate growth and employment.
The fiscal compact includes strict debt brakes and makes it more difficult for deficit sinners to escape sanctions. The 17 countries in the eurozone hope the tighter rules will restore confidence in their joint currency and convince investors that all of them will get their debts under control.
Although the new rules only apply to the 17 euro states, the currency union wants to get broad support from the other EU states, in hopes the accord will eventually be integrated into the main EU treaty.
Leaders at the summit also promised to stimulate growth and create jobs across the region, an acknowledgment that their exclusive focus on austerity has had painful side effects.
The leaders pledged to offer more training for young people to ease their transition into the work force, to deploy unused development funds to create jobs, to reduce barriers to doing business across the EU and ensure that small businesses have access to credit.