Earlier in the week, I wrote about how David Cameron wanted to use his leverage as a non-Eurozone member of the EU to wring concessions as a condition of signing treaty changes. At the EU summit, he presented his aims: basically, softening a financial transaction tax that the other countries in Europe want, and other policies that protect British banks. Because you need all 27 members of the EU on board with the preferred fiscal policies that really only affect the 17 countries in the Eurozone, Cameron thought he had the power to hold out. So Cameron vetoed the revisions to the Treaty of Lisbon. And then the Eurozone leadership, essentially France and Germany, went around Britain and negotiated a bunch of Eurozone side deals.

Britain is facing isolation in Europe after David Cameron vetoed a revision of the Lisbon treaty, prompting a majority of EU members to agree to draw up their own deal outside the architecture of the union.

In one of the most significant developments in Britain’s 38-year membership of the EU, the British prime minister said early on Friday morning he could not allow a “treaty within a treaty” that would undermine the UK’s position in the single market.

The move marked a victory for Nicolas Sarkozy, who had been pressing for an inter-governmental agreement among the 17 members of the eurozone to underpin tough new fiscal rules for the single currency. “We could not accept this,” he said of Cameron’s demands.

The French president, who has been pressing for the formalisation of a “two-speed Europe”, was pleased on Friday when the number of EU member states indicating their support for a separate treaty reached 23. Britain was joined by Sweden, which rejected euro membership in a referendum, the Czech Republic and Hungary.

So Britain ends up with nothing – although they may be able to veto any changes to financial rules that affect them down the road, given the byzantine rules of the EU I’m sure there’s some chance for a veto somewhere – and the EU moves toward their latest plan, though hobbled by the lack of consensus. The Eurozone countries, and those in central Europe which aspire to use the euro, may need to write their own treaty, which could take months and require referenda in some countries. Though all the countries present agreed to the fiscal consolidation, with the implication that a treaty along those lines would lead to acceptance, time is of the essence, and the possibility of referenda becomes a wild card. And the question of who would have the power to administer the new treaty if EU institutions cannot looms large.

The ECB decided to keep purchasing bonds, but still rejects the lender of last resort position that most central banks would take during a crisis. The ECB will run the various European bailout funds. And the IMF stepped in on behalf of its constituency:

European Union leaders dropped their demand that investors share the cost of bailouts as Germany abandoned a campaign that helped deepen the two-year-old financial crisis.

Limiting so-called private-sector involvement to the terms accepted in International Monetary Fund bailouts was part of a package agreed upon in Brussels early today as leaders met to forge tighter economic bonds to stem the crisis.

“As regards private-sector involvement, we have made a major change in our doctrine: from now on we will strictly adhere to the IMF principles and doctrines,” EU President Herman Van Rompuy told reporters at a briefing. “Or, to put it more bluntly, our first approach to PSI, which had a very negative effect on debt markets is now officially over.”

This was presumably the price for getting IMF support for the more troubled countries in the Eurozone (to which the EU sent €200 billion for the privilege). So the bankers and investors will pay no price for their bad lending. Only the people suffering under austerity will have to pay.