The Prime Minister has taken a hard line in Europe in a political gamble that could leave Britain isolated.
"Where we can't be given safeguards, it is better to be on the outside," said David Cameron at 6.20am today, as he announced that he has vetoed a revision of the Lisbon Treaty.
This is a huge development. It is the first time that a major treaty, striking at the heart of the EU, will go ahead without a British signature since Britain joined in 1973. It will redefine the nature of Britain's relationship with Europe, essentially creating a two-speed EU.
As I blogged on Wednesday , Cameron was in a very tight spot politically: on the one hand, his Eurosceptic backbenchers were clamouring for a referendum, while on the other his Liberal Democrat coalition partners warned against the risks of isolating Britain.
Isolation is certainly the main worry in the papers this morning. Of the 27 member states, all but four signed up to the treaty, with just Britain, Hungary, Sweden and the Czech Republic remaining on the outside. Sweden and the Czech Republic may yet join after their leaders have consulted their parliaments.
The risk here is that Britain will not only lose influence in the UK, but that its position in the single market will be jeopardised. Defending his decision at that early morning press conference (which was held after more than 10 hours of negotiations that ran through the night), Cameron said:
Of course we want the eurozone countries to come together and to solve their problems. But we should only allow that to happen inside the European Union treaties if there are proper protections for the single market and for other key British interests. Without those safeguards it is better not to have a treaty within a treaty but to have those countries make their arrangements separately.
He insisted that he would work to ensure that any agreement works for all 27 member states, not just the 23 signed up to it.
So, Cameron will not be forced to go to Parliament with a contentious treaty, nearly 20 years after John Major's trials with Maastricht. But does this decision ease his political headache?
In short, not really. The decision has won grudging support ("Credit where it's due -- Cameron has shown backbone," said Roger Helmer MEP), but it is by no means certain that calls for a referendum will end. Eurosceptics could feasibly still argue that the new treaty marks a major change in the power structures of EU and that the British public should be consulted.
It is unclear how much Nick Clegg knew about Cameron's hardline stance on this, but the Prime Minister's calculation will be that the Lib Dems will not walk out of coalition over this issue.
The other risk here is that "Britain's interests" will not necessarily be safeguarded. Cameron made defence of the City of London his price, demanding that any transfer of power from a national regulator to an EU regulator on financial services be subject to a veto. The cost was too high, as French President Nicolas Sarkozy (who has been pushing for a two-speed Europe) explained:
David Cameron requested something which we all considered was unacceptable. We couldn't have a waiver for the UK and in my view it would have undermined a lot of what we have done to regulate the financial sector.
Financial services regulation will press ahead without Britain, then. However, the Guardian points out that these regulations are decided by qualified majority voting, in which Britain does not have a veto. It can currently form a "blocking minority" to prevent legislation from going through, but if more countries join the euro this will shrink.
Cameron has taken a huge political gamble, hoping to channel Margaret Thatcher and her intransigence in Europe, rather than John Major and his struggles over the Maastricht Treaty. It has yet to be seen whether it will pay off. The first priority must be the resolution of the eurozone crisis, which Cameron himself said is "our biggest national interest". The next stage of talks will focus on saving the euro -- without Britain's input.