-EU leaders agree sanctions for rule breakers would be appropriate, unless blocked by qualified majority
-Rival David Davis says change in 'balance of power' requires a referendum
-Michael Howard claims now is the wrong time to push for UK interests
-Cabinet allies understood to being urging PM to strengthen his stance
-Angela Merkel claims she will say 'no' to any attempts to safeguard Britain
-Sarkozy warns there is 'no second chance' for the euro
-Markets in Europe and the U.S. Slip
A stern-faced David Cameron arrived in Brussels this evening faced with a stark choice: crush the hopes of Tory eurosceptics, or stand firm and risk wrecking a planned deal to save the eurozone.
The Prime Minister insists that the UK must be included in any new treaty which aims to resolve Europe's debt crisis.
As talks began late this evening EU officials began to make a series of announcements.
Around 10.30pm it emerged leaders had agreed on sanctions for rule breakers, unless blocked by a qualified majority.
Also proposals made by the European Central Bank for a new 'fiscal compact' with stricter budget rules, which were leaked earlier today, seem to have been agreed on in principle.
An EU official said that in the first hours of the summit, leaders agreed that national debt brakes should limit deficits, before debt and interest payments, to 0.5 per cent of annual economic output.
The official was speaking on condition of anonymity because the talks were ongoing. This 0.5 per cent limit, which could only be exceeded in exceptional situations or to counteract a recession, is stricter than the 3 percent cap set out in current EU law, although the 3 per cent also includes interest and debt payments.
Before talks began Mr Cameron threatened to veto any new restrictions on Britain's financial sector as a condition of signing up to the deal which will be hammered out at a summit tomorrow.
And at the same time he faces demands from his own MPs to hold a referendum before agreeing to a treaty which would draw the EU closer together.
European leaders are hoping to secure a deal involving all 27 countries of the EU, but eurozone chiefs have indicated that if Mr Cameron continues to insist on securing a privileged position for Britain then negotiations could collapse.
EU governments would then draw up a treaty involving only the eurozone - meaning the UK would have no say on a deal which could introduce unprecedented levels of economic integration.
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