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EU leaders are set to discuss legal details on December 9 as they inched closer to an inter-governmental fiscal pact in marathon talks. However, failure to secure a deal on treaty change - and the likely complications that will follow - on top of the continued snail's pace of reform and lack of commitment to add significant firepower to Eurozone bailout facilities disappointed the financial markets.

As expected, the summit failed to secure agreement from all 27 members of the EU to allow tighter fiscal regulation, with the UK playing its regular role as party-pooper, threatening to veto any treaty change over proposed regulations on financial services. That revived worry over a two-speed Europe. The summit also said the size of the Eurozone's bailout would be capped at EUR500bn.

UK Prime Minister David Cameron doesn't have much company though, and depending on the erratic policy makers in Budapest, he may find himself totally isolated. Overall, 23 states have agreed to greater budgetary surveillance by Brussels, stronger fiscal discipline, and automatic sanctions for misbehaving states.

Bulgaria, Denmark, Latvia, Lithuania, Poland and Romania have signed up for the pact alongside the 17 Eurozone members. Meanwhile, the Czech Republic and Sweden said they will take the matter back to their parliaments. Hungary joined the UK in holding out, but reports now say it has also suggested it will discuss the matter amongst lawmakers.

Reports say that the meeting was stormy, with Cameron once again clashing with French President Nicolas Sarkozy. "It is our British friends' choice," sniffed Sarkozy. "We respect this choice but they cannot blame us. You cannot on the one hand be asking for an opt out from the euro and on the other hand ask to be involved in all the decisions of a euro that you not only do not want and but also often criticize. We are not going to apologise for what we are doing to save our currency."

Whilst the prospect of a two-speed Europe contains many potential booby traps, the fact that the summit has finally pushed through a decision - and looks to have found a way to circumvent the labyrinthine political shenanigans connected to treaty change - is at least something,

The meetings today will discuss the legal details of the pact, and in particular how to involve EU institutions in administering measures not agreed by all 27-members, but rather by a group of governments. "We would have preferred unanimous agreement," said European Commission President Jose Manuel Barroso, lamenting that the pact "was the only option left," reports EU Observer.

Indeed, the makeshift action is likely to throw up a series of unpredictable political and legal problems that will emerge as the intergovernmental text is drafted in time for the EU leaders' spring summit in March. However, Barroso stressed that "this does not mean the EU institutions will not have a role."

At the same time, the "last chance saloon" summit disappointed markets still hoping to see the money printing presses turned on. EU leaders announced that the capacity of the European Stability Mechanism, which will come into force in July 2012, is to be capped at EUR500bn. Given that figures of up to EUR2 trillion were bandied about in recent weeks, its no surprise that the euro came under immediate pressure and that equities have been sliding across the globe.

The summit also rejected the suggestion of Herman Van Rompuy, president of the European Council, that the facility should get a banking licence, which would free it to borrow from the ECB. Instead, the German plan remains on track, with EU countries agreeing to channel up to EUR200bn via the IMF, EUR150bn of it to come from Eurozone states, reports Reuters.

Earlier, European Central Bank head Mario Draghi also disappointed when he appeared to perform a U-turn. In the run-up to the summit, comments from Draghi had spurred hopes that the bank may buy massive volumes of debt from distressed euro zone states, but as he announced an anticipated 25-bp cut in ECB benchmark rates to 1%, he suggested he has had a change of heart. The ECB chief said his recent remark that "other elements" might follow if euro zone leaders agreed to seal tougher new budget rules had been wrongly interpreted.