Brussels: The leaders of 23 European countries moved to tie their economies much closer together in a new treaty in their latest attempt to shore up the euro, but failed to get the four other European Union members, including Britain, from joining in.

Following marathon all-night talks, the 23 decided to back a new treaty with strict oversight over national budgets, as they try to convince markets that the euro has a future in the wake of a crippling debt crisis.

Even after today's long-awaited deal, watched by governments and markets worldwide, the European leaders have huge hurdles still ahead.

They are meeting again later today to work out what exactly their new treaty will contain and how violators of its strict budget rules will be policed. They want it written by March.

Britain, which doesn't use the euro, led the push against a treaty tying all 27 EU countries to tighter fiscal union, arguing that it would threaten its national sovereignty and London's esteemed financial services industry.

Most EU countries had pushed for an EU-wide accord to avoid a split, but Germany and France, the eurozone's biggest economies, quickly made clear that a deal among the 17 euro countries and whoever else wanted to join was better than nothing.

The immediate market response was lukewarm, with stock markets in Asia and Europe down sharply, the Stoxx 50 of leading European shares was trading 0.5 per cent lower soon after the open while the euro is down 0.4 per cent at USD 1.3303.

Markets may be worried that the failure of the EU to get unanimous support for more stringent budgetary rules may rattle the foundations of a union created to foster peace and prosperity across Europe following World War II.

French President Nicolas Sarkozy laid the blame at the feet of British Prime Minister David Cameron.

"David Cameron made a proposal that seemed to us unacceptable, a protocol to the treaty that would have exonerated the United Kingdom from a great number of financial service regulations," Sarkozy said shortly before dawn, after what he called a "difficult" dinner meeting had dragged through the night.

(Agencies)