David Cameron has refused to join an EU financial crisis accord after 10 hours of negotiations in Brussels.
Mr Cameron said it was not in Britain's interest "so I didn't sign up to it".
But France's President Sarkozy said his "unacceptable" demands for exemptions over financial services blocked the chance of a full treaty.
Of the 27 EU members Britain and Hungary look set to stay outside the accord, with Sweden and the Czech Republic having to consult on it.
A full accord of "wasn't possible, given the position of our British friends," President Sarkozy said.
The BBC's political editor Nick Robinson said the consequences "could scarcely be greater for Europe and for Britain's relationship with Europe".
Mr Sarkozy said the eurozone countries would sign an intergovernmental accord aimed at stabilising the currency in the face of the debt crisis, plus any other EU members that wanted to join.
Speaking in a press conference following the meeting he said: "The countries that have remained outside are Hungary and Britain, and the countries that have to consult with their parliaments are the Czechs and the Swedes."
Mr Cameron told a press conference: "We want the Eurozone countries to come together and solve their problems. But we should only allow that to happen within the EU treaties if there are proper protections for the single market, for other key British interests. http://www.bbc.co.uk/news/uk-16104275