A deal to bind together the eurozone finally emerged from a crucial European Union summit on Friday.
All but one of the European Union's members have signed a proposal that creates a new "fiscal compact" for the eurozone, potentially paving the way for a concerted financial response to the sovereign debt crisis that has paralysed companies and politicians across the continent for almost two years.
An ambitious plan to move towards economic integration was unveiled on Friday, with countries committing to an unprecedented level of cooperation.
The United Kingdom was the only dissenter, using its veto and pulling out of the deal.
David Cameron, the prime minister, left the process once it was clear that the French and German governments, who have been driving today's agreement since they unveiled its key points after a bilateral summit on Monday, would not back down and allow the UK to opt out of financial sector regulations.
The key points of the agreement are:
- The eurozone will move towards common economic policies
- Countries who run government budget deficits above 3% will face immediate sanctions, unless a majority of member states disagree
- States who have a structural deficit of more than 0.5% will have to undergo EC supervision of their economies
- There will be no more "haircuts" on debt - Greece was a one-off
- Leaders want to leverage the resources of the European Financial Stability Facility (EFSF), the bail out fund, to boost its firepower
- The EFSF's permanent successor, the European Stability Mechanism (ESM), will be brought forward to 2012
- The EU will confirm "within 10 days" whether they will lend €200bn to the IMF
Cameron's gamble may have been calculated on the basis that the 10 "outs", the EU members not yet in the euro, would similarly reject any deal that might be seen to prejudice their interests against those of the 17 "ins".
Initial indications were that Sweden, Hungary and the Czech Republic were set to join Cameron's refusniks, but by late morning, when a draft text emerged, they were all back in.
Sweden's finance minister Olaf Borg told Sky later on that the "most important thing is to create an agreement that is a turning point in the European economy," heavily implying that the debates over economic sovereignty took backstage to the clear danger to the stability of the union.
"This is a big constitutional moment for the European Union," Professor Achilles Skordas, a former advisor to the Greek government an expert in European constitutional law at the University of Bristol, told the Huffington Post UK. "It is the first time that economic governance takes a very specific shape, with the fiscal stability union, which complements the architecture of the economic and monetary union.
"I was surprised with the force of the dynamic that brought practically everybody on board, even despite the reservations of the Hungarians or the Swedes," he added. "This shows how much the forces of the market now shape this change. It's not development by design, it's development by necessity."
"Economic governance is becoming a reality… this is perhaps the first step to a Central European federalism."
Sovereignty debates are likely to resurface as implementation of this agreement goes ahead, but as Skordas said, the unity - absent Britain - showed by EU leaders replaced the usual incoherence that has typified the crisis response to date. Everyone, even the normally truculent eurosceptics in Finland, Slovakia and the Netherlands, remained on message.
This was what markets had been hoping for.
"The initiative has definitely been set this week by the Franco-German talks, and I suppose for markets that's probably still what matters most," Alan Wilde, head of fixed income and currencies at Baring Asset Management in London told the Huffington Post UK in the run-up to the conference.
"Whether Finland agrees to all of this or wants to stick its neck out and say 'we're not having this' or whether the UK has got its own agenda and wants to be involved in the process, even if it's related to the single currency area, they're kind of side shows. I think maybe by concentrating the market's attention on the agreement between Merkel and Sarkozy, they've quite neatly managed to avoid the noise that goes on with all the other euro countries that are involved in the process."
In the short term, the draft summit document calls for the "swift and vigorous implementation of the measures already agreed" - presumably the temporary bailout fund, the European Financial Stability Facility (EFSF), and its long-term successor the European Stability Mechanism (ESM). Beyond that, however, it explicitly states that a degree of economic union is "indispensable" to the continuation of the single currency union.
The EFSF will be leveraged to increase its size, and the European Central Bank is likely to take a lead role in deploying it. The ESM will be brought forward to 2012, and will require countries representing 90% of the total financial commitments to it to ratify it before it is finalised - reducing the likelihood that minority stakeholders could derail the process, as nearly happened with the EFSF earlier in the year.
Voting rules in the ESM will also be changed to create an emergency procedure, so that in times of financial threat, a qualified majority of 85%, rather than a total majority, would be needed to act, although an objection from Finland means that this clause will need to be ratified by the parliament in Helsinki.
The EU will confirm within 10 days whether they will be able to release a €200bn loan to the International Monetary Fund (IMF), so that the fund has enough to deal with any immediate crisis in Italy.
Despite the precedent set by the 50% write-down agreed with the private sector on Greece's debt, there will be no more haircuts. This is a major concession by the Germans, who wanted the public sector to avoid carrying the can in the event of future restructurings.
In the longer term, the eurozone countries will also move towards a new fiscal compact and "significantly stronger coordination of economic policies in areas of common interest", the document said. "This will require a new deal between euro area member states to be enshrined in common, ambitious rules that translate their strong political commitment into a new legal framework."
Common economic policy is now the goal of the eurozone, the document said. "A procedure will be established to ensure that all major economic policy reforms planned by euro area member states will be discussed and coordinated at the level of the euro area," it reads.
Under new rules, eurozone government budgets will need to be either fully balanced or in surplus, with their structural deficits - the portion of their spending that is not dependent on the country's underlying growth - not above 0.5% of their gross domestic product (GDP). This rule would be enshrined in the constitutions of member states, or in their equivalent legal documents, with the European Court of Justice being given jurisdiction to monitor implementation.
Countries which fail to meet this target would have to agree "an economic partnership programme" - a euphemism for a conditional bailout - with the European Commission, which would set the structural adjustments needed to get back on track.
An enforcement mechanism to prevent countries from straying outside the 3% overall budget deficit - set as an initial target for eurozone membership - will also be created. There will be "automatic consequences" unless a majority of member states object.
While cynicism is an understandable feature of the market's response to this crisis, there is a growing sense that something has been achieved in Brussels.
Before the summit, investors and analysts said that they had never expected the crisis to last this long or go this far. The road to this summit has been fraught with high drama and intrigue, rumours, leaks and almost monthly crunch points and deadlines. The sovereign default of a developed market and the exit of a country from the eurozone was barely conceivable a year ago, but a succession of failed measures, half-funded responses and brinkmanship have driven the single currency to the verge of collapse.
"I would have to say that we probably had not anticipated that it would have deteriorated to this extent," Wilde said. "I think also we felt that the political cohesion that held together the single currency was more important perhaps than the economics, but in actual fact it's the lack of political cohesion that's let the whole process down, even if ultimately it is to do with competitiveness and the imposition of policy measures that require many years' work out."
He added: "In a sense you still have to pinch yourself that we are at this stage, where there is a risk of major sovereign countries in a rich part of the world basically defaulting."
Things move slowly in Brussels, but in Frankfurt, Paris, Milan and London they go as fast as Bloomberg, Reuters and Dow Jones can shuffle offhand remarks or statements of theory from policymakers onto the wires. The "eurocracy" was not only slow to catch on to the importance of market sentiment, it was at times almost wilfully resistant to it, failing to offer coherent solutions that would convince investors that they could ever truly tackle the problem.
Leaders missed the last big chance to solve the crisis at the end of October, when a three-pronged approach incorporating a Greek bailout and debt write-down, a beefed-up rescue fund and the recapitalisation of European banks was agreed, then promptly destroyed by George Papandreou, then prime minister of Greece.
Papandreou shocked markets by saying that the plan would be put to a referendum in Greece. His plan - and career - were rapidly curtailed, but the damage was done, and the international institutions and emerging market sovereign wealth funds that were supposed to be adding firepower to the bailout funds shied away.
"Did I think we could get to this situation? No. I thought when they got to October they would recognise that they had to do something meaningful. But they didn't. They did just about the bare minimum," Simon Derrick, BNY Mellon's chief currency strategist told the Huffington Post UK earlier this week. "Admittedly, if Papandreou hadn't found himself in such a tight spot domestically, we might just have limped through and we wouldn't have ended up in this crisis. But there's the problem of trying to understand domestic politics."
Markets in Europe gained strongly on Friday, but the circus has not finished travelling just yet. With Merkel, Sarkozy et al having done their bit, all eyes will now fall on Mario Draghi, the ECB's president. The Italian had indicated that clear steps towards fiscal union could be a precursor to quantitative easing, which investors hope could be enough to keep Italy - the eurozone's biggest problem - afloat until more permanent solutions, and Friday's agreements, can be put in place.
The ECB meets on Thursday, and markets will be waiting to see if Draghi has his finger on the trigger of the "bazooka", or if he will hold fire and plunge the eurozone back into crisis mode.
As for the UK, Cameron's gambit has attracted plaudits from the large eurosceptic lobby in his party, but critics of the move, as well as other European leaders, have warned that the UK has risked isolating itself.
Baron Roger Liddle, the chairman of the Policy Network think tank and a former adviser to Tony Blair on Europe, warned that the gamble may well fail to protect Britain's interests, while simultaneously see the country lose its influence in Brussels. The veto, Liddle warned, might be the "beginning of the end for Britain in Europe."