It comes as a leading economist has forecast the UK will fall back into "outright recession" next year. Gerard Lyons, Standard Chartered's chief economist, has predicted the UK will contract by 1.3 per cent in 2012, far more than the official forecast of a 0.1 per cent fall in the final three months of the current year. Mr Lyons said the fall will be caused by "a squeeze on incomes, the tightening of fiscal policy, low confidence and the hit to exports from a recession in Europe. It will be both a tough domestic and external environment".

He suggested the Chancellor will have to borrow more to stimulate growth. "While the low yields the UK now pays help keep debt payments down, this should not be their only benefit," he said. Calls for a fiscal stimulus could be reinforced by the BIS study, which suggested the Bank is running out of ammunition to rekindle the recovery, having just increased its money printing programme from 200 billion pounds to 275 billion pounds. In its quarterly report, BIS cited reasons why QE would have a limited effect. "In terms of programme size relative to the amount of outstanding debt, the purchases might be subject to diminishing returns," it said.

The analysis shows that QE accounts for about 30 per cent of the free float in the UK, excluding QE2, compared with about 20 per cent in the US. Analysts have questioned whether the Bank is running out of policy measures.

It is happening just as Europe's banks slash their books to meet the EU's core Tier I capital ratios of 9 per cent. The Basel-based Financial Stability Board - the collective voice of the world's monetary authorities - fears the banks could inflict a 2.4 trillion euros crunch over "coming months", just as Euroland crashes back into recession. It is hard to imagine a more reckless recipe for social disorder than to combine these shocks at once.

Europe's mishandling of its affairs is now grave enough to alarm the Pentagon, presumably well-briefed by the DIA, NSA, and ECHELON network of electronic eaves-dropping. "We are extraordinarily concerned by the health and viability of the euro because in some ways we're exposed literally to contracts but also because of the potential of civil unrest and break-up of the union,'' said General Martin Dempsey, chair of the US Joint Chiefs of Staff. Many of those EU leaders who went along with this summit accord - including France's Nicolas Sarkozy - must know that it is Medieval leech-cure treatment and can only drain the lifeblood from large parts of wasted Euroland.

The tension would not exist if Germany and its satellites had their own hard currency, reflecting their hard economy and the tastes of their own hard-working peoples. A free float would restore equilibrium by natural means, consistent with Kultur. At the end of the day, it always comes down the one core problem, the euro itself. Monetary union itself blocks any plausible solution. We have not advanced one inch.

Everything was over after half an hour. At that point the summit, which was expected to be a historic one, had not even begun, and yet it was already clear that it would not end well. German Chancellor Angela Merkel and French President Nicolas Sarkozy had met with British Prime Minister David Cameron at 7:30 pm on Thursday evening. Their goal was to determine how far Great Britain would be willing to go to support the German-French plans to save the euro. Not very far, it would soon become clear.

Cameron demanded extensive exceptions for his country in the event that the European treaties would have to be amended. Most of all, however, he wanted the British financial sector not to be subject to European supervision. Merkel and Sarkozy quickly made it clear to Cameron that that would be unacceptable. And so the summit, which was intended to be a turning point in the struggle to save the euro, ended up marking a major turning point in the history of the European Union. In the middle of its biggest crisis to date, the European Union is divided and Great Britain has been sidelined, possibly for the long term.

The remaining countries want to follow the 17 members of the euro zone on the path to the sort of fiscal compact Merkel and Sarkozy have outlined. They want it to become a so-called "stability union," with balanced budget provisions to be written into national constitutions and automatic sanctions for deficit offenders. It's the kind of union that Merkel believes is inevitable.

But many countries are only following the Germans' lead with reluctance. The agreement only came about because investors are shunning the bonds of ailing euro-zone countries, and because even the strong countries are facing the possibility of having their creditworthiness downgraded by the rating agencies. But other countries that have long supported a true economic government are asking themselves why the Germans had hesitated for so long.

Great Britain is now largely isolated. As a result, it needs to ask itself what role, if any, it still plays in this new Europe.

Merkel, for her part, wants to prevent Britain and the euro zone from drifting further and further apart. She recently told confidants that it is important to give the British the feeling that they are still part of Europe. But the French see it differently, hoping that they will carry more weight in a union that does not include Britain.

European Union (EU) leaders ended the summit with a historic agreement to draft a new treaty for deeper integration in the euro zone, but analysts and policymakers remained skeptical such long-term steps could solve the crisis that has shaken Europe for two years. While German Chancellor Angela Merkel said she didn't expect leaders would meet again before Christmas, a senior EU official said he thought market pressure would compel them to meet in a room together again sooner rather than later.

The euro slipped early on Monday, safe haven German government bond futures rose and European stock futures were pointing lower, though none of the moves were dramatic. "The moves by the euro zone policymakers are not a damp squib but neither are they the big bazooka hoped for that could really ease market tension for an extended period," said Howard Archer, economist at IHS Global Insight. The euro slipped in Asia on Monday as investors took the view that the EU plan was not the decisive move needed to resolve the debt crisis.

Those steps, together with a leveraged EFSF - the existing bailout fund - are intended to boost help for troubled euro zone countries, such as Italy and Spain, the bloc's third and fourth largest economies, as they muddle through their refinancing crunches. Italy alone has 150 billion euros in debt falling due between February and April of next year.

More than two-thirds of this is devoted to protecting children - via social care and child support - and tackling the crime and anti-social behaviour such families often generate. Police have said that in some cases it would be cheaper to have an officer permanently stationed at a family's home than respond to constant call-outs. The findings come ahead of a major speech later this week by David Cameron in which he is expected to announce new sanctions against such families - combined with what sources describe as 'targeted resources' - as part of his mission to tackle 'broken Britain'.

Researchers devised a seven-point checklist of factors, with families that fulfilled five or more being designated as 'problem'. The criteria include no one in the family being employed, neither parent having any qualifications and being unable to afford certain basic food or clothing items. The research reveals that teenagers raised in such families are 36 times more likely to be excluded from school than children in families with no problems. They are also six times more likely to have been in care, while 63 per cent of boys whose fathers are jailed will eventually be convicted themselves.

Downing Street's determination to deal with problem families has been strengthened by the need to make deep cuts to local authority budgets. One Whitehall source said: 'We simply don't have the money to spare. These families are a drain on local services, which could be much better directed elsewhere. One local police force told us that it would actually be cheaper to have an officer permanently stationed on the family's sofa than have to respond to the constant call-outs to the house.'

'We need to get kids back in the classroom, and to get parents off drugs and on to a work programme to stop them committing crime.' Communities Secretary Eric Pickles said: 'For too long, these families have been locked in a cycle of state dependency. Worklessness has been passed down from generation to generation. Over the years, millions of pounds have been squandered on fruitless, unco-ordinated investment and we can no longer afford to foot the bill.'

David Cameron has received overwhelming support from British voters over his historic decision to veto changes to the EU Treaty. If there was a referendum today on whether the UK should quit the EU, it would be likely to produce a resounding Yes. Nearly 50 per cent say we should go our own way, with 33 per cent in favour of staying in.

Amid the frenetic recriminations following the summit, the poll shows Mr Cameron's dramatic move to set Britain on a separate course from the other 26 nations in the EU is wholeheartedly endorsed by voters. The summit triumph has also wiped out Labour's lead in the opinion polls. Both Labour and the Conservatives are now on 35 per cent, with the Lib Dems on 14. According to the exclusive poll for The Mail on Sunday, nearly two-thirds of voters believe the new EU initiative, designed to save the euro by imposing tough economic controls on bankrupt European countries, is probably a waste of time.

Two in three want a referendum on Britain's future in Europe with just 22 per cent against. Calls for Mr Cameron to press home his advantage and demand that Brussels hands back more powers to London produce an almost identical level of support. The public are in no doubt that despite all the grandstanding by French President Nicolas Sarkozy, Mr Cameron came off best in Brussels. When asked if the Prime Minister had done well from the negotiations, more than half agreed. In comparison, German Chancellor Angela Merkel scored 44 per cent with Mr Sarkozy languishing in third place on 35.

Interestingly, as Britain steps back from Europe, there is growing nervousness at the advance of German influence in the new-look EU. Seven out of ten say the summit has given too much power to Germany - with a mere 13 per cent disagreeing. Nor is the jittery feeling restricted to Britain. Warning of a backlash, an article in leading German newspaper Der Spiegel said: 'We are going to have to put up with a bit of Germanophobia.' Charles Grant, director of the London based Centre for European Reform think tank, said: 'For the first time in the history of the EU, the Germans are now in charge.'

The City provides services to a large part of the world, and financial services are our biggest sector for employment, taxes and exports. The EU, and Germany and France in particular, envy that position. They would like to divert as much of that activity as they could to Frankfurt and Paris, hence the proposed regulations to move the markets in so-called Over the Counter Products such as foreign exchange, and bonds onto exchanges, like Deutsche Borse and Euronext.

THE EUROZONE LEADERS ALSO FEAR THE MARKETS BECAUSE THEY ARE THE LAST THING WHICH HOLDS THEM TO ACCOUNT.

Because the eurozone countries are running such large budget deficits they are answerable to the bond markets which are now refusing to supply those funds. The attempts by the EU authorities to silence the markets by devices such as bans on short selling are a clear sign of their wish to shoot the messenger, but they are ineffective whilst those market are in and regulated from London.

We are told by critics like Labour's Douglas Alexander that this move has left Britain isolated from Europe. This might be worrying if it were not for the fact so far the Euro has proven to be an unmitigated disaster and there is nothing from this latest in the seemingly endless series of summits to suggest that this will change. We are told that the whole point of the treaty changes was to ensure that there was some central authority which would ensure that, in future, eurozone countries cannot run up the sort of debts which they now have.

DIDN'T WE ALREADY HAVE SUCH RULES IN THE IRONICALLY NAMED GROWTH AND STABILITY PACT ENSHRINED IN THE MAASTRICHT TREATY WHICH WERE DISREGARDED?

"We can't see it's really changed anything," is spokesman Graham Sharpe's verdict on a conflab that produced a more isolationist Britain and a potential two-tier EU - but failed to convince anyone, least of all the markets, that monetary union at last had some durable political oomph behind it.

Simon Smith, chief economist at FxPro, says the fate of the eurozone has now become "binary": "Either one or more of the countries will leave or you'll see an accelerated path to fiscal union. But what has been agreed at this summit doesn't go far enough towards fiscal union. The momentum on that is too slow. I'm less optimistic than I was a couple of months ago."

German chancellor Angela Merkel insisted the agreement was not a "lousy compromise". But, like many economists, Smith suspects it is exactly that. It is built around a toothless-looking "fiscal compact" that is not only reminiscent of the discredited Stability and Growth Pact but does nothing to address what many see as the real eurozone problem - the current account imbalances that are reinforced by, say, Greece's lack of competitiveness compared to Germany's. Instead, Merkel remains focused on deficits.

Indeed, the agreement ducks all of the big fiscal decisions, such as debt pooling or some sort of centralised EU Treasury. Neither is there a banking licence for the so-called "permanent" rescue fund - the European Stability Mechanism (ESM) - that is planned to displace the European Financial Stability Facility (EFSF). The ESM will now be set up by July next year, instead of 2013, with a potential cap of 500 billion euros to appease Merkel. But, as Hardy notes, there's "no word on where those funds would come from".

Richard McGuire, senior fixed income strategist at Rabobank comments: "Crunch time" could be the first half of next year, with Italy having to refinance 36 billion euros of debts in February, 27 billion euros in March and 28 billion euros in April. That is part of a programme that will see almost 400 billion euros of debt issuance by Italy next year - not to mention around 150 billion euros by Spain. Yields on Italian 10-year debt currently stand at 6.8 per cent. On Spain's, the figure is 5.8 per cent. If either stick above the bail-out alert level of 7 per cent, eurozone leaders will have to come up with something better than last week's flim-flam.

That day has not yet arrived, however. As Trevor Greetham, Fidelity's director of asset allocation, says: "There are probably only two stable equilibria, full political union or break-up. With neither imminent, I'd say volatility is here to stay."

It is an irony of history - on this very day 20 years ago, the Maastricht Treaty was signed, bringing the European Union into existence. On December 9 and 10, 1991, the 12 leaders of the European Community agreed to the groundbreaking agreement and a historic project was set on its way.

Two decades on, and with the European debt crisis in full flow, the EU is facing its toughest test so far. Now one person stands out as the most divisive figure: David Cameron. Following marathon talks on Thursday night, the British prime minister vetoed a change in the EU treaties as called for by German Chancellor Angela Merkel and French President Nicolas Sarkozy.

Cameron's use of his veto has provided for much discontent within the European Parliament. "IT WAS A MISTAKE TO ADMIT THE BRITISH INTO THE EUROPEAN UNION," said Alexander Graf Lambsdorff, a prominent German MEP with the business-friendly Free Democrats, and vice chair of ALDE, the liberal block in the European Parliament. The UK must now renegotiate its relationship with the EU, he said. "Either they do it by themselves, OR THE EU WILL BE FOUNDED ANEW - WITHOUT GREAT BRITAIN," Lambsdorff said. "Switzerland is also a possible role model for the British," he added, refering to the fiercely independent stance of the Alpine country, which is not an EU member.

Pentagon and CIA spokesmen would not comment on whether it was the missing US RQ-170 Sentinel unmanned aircraft. A person familiar with the situation confirmed that the drone that crashed was on a surveillance mission over Iran. It is believed to have crashed because of a malfunction and not from being shot down or computer-hacked by the Iranians, a US official said on condition of anonymity. Although there are risks that Iran could attempt to reverse engineer the technology, or sell it to other countries, like China, US officials believe that Iran will not be able to mine the drone's computer systems to learn details of the US surveillance mission.

US surveillance of Iran through various means has been going on for years, US officials and others with direct knowledge of the situation say. A private US defense expert, who spoke on condition of anonymity, said that when he visited the command center at a US military base in the Gulf region in 2008, it was clear that the installation was receiving multiple feeds of electronic surveillance information from inside Iran. Some of the information appeared to be transmitted from high-altitude aircraft and some from electronic sensors which the United States had somehow installed on the ground in Iran, the expert said.

US officials do not appear to be the least bit disturbed about mishaps to Iran's nuclear and missile programs that include the Stuxnet computer virus that attacked centrifuges at the Natanz nuclear site. "Whether it's due to technical difficulties, incompetence, or other reasons, some setbacks to Iran's activities are welcome," a US official said on condition of anonymity.

There was plenty of talk of history in the making in the week before the December 8/9 gathering of European Union leaders - the eighth this year. But it was all about the currency and whether it would survive the strains of a debt crisis that over the past two years has engulfed Greece, spread to Ireland, Portugal, Spain and Italy and now threatens France and even mighty Germany.

As the summit began, there was no hint of the drama that was to come in the early hours of Friday, the moment when Europe split, 26 against one, after about 10 hours of talks. Britain has always had an uneasy relationship with its EU partners, choosing not to join the single currency or sign the open borders Schengen treaty and often kicking against what it sees as Brussels "interference."

But this was a low point. The first time in 39 years that a British prime minister had used a veto to block an EU agreement. David Cameron cast it is a bold and necessary decision to protect British interests. Most of the rest of Europe appeared to regard it as reckless and went a different way. Hours later, when the leaders briefly reconvened to finish their discussions, Cameron cut a lonely figure. French President Nicolas Sarkozy appeared to avoid an extended hand as Cameron walked to his seat.

Another official present at the talks recalled the moment, in the early hours of Friday, when European Union President Herman Van Rompuy, who chaired the meeting, proposed moving forward with an intergovernmental agreement of the 17 euro zone nations, with an open invitation for other countries to join.

"France said yes, immediately followed by Germany and then one by one, in a matter of seconds the member states of the euro zone backed the Franco-German call. Within a few minutes, the non-euro zone member states decided they wanted to be in and left Cameron completely isolated. The swing was very, very quick. Everybody was on board in a matter of minutes. I think it was obvious inside the room that Cameron was shocked by the swiftness with which his allies left him alone."

"Cameron made a serious miscalculation. He genuinely thought he could get something back in return and underestimated the willingness of the euro zone to move on. That's our view. This deal has probably saved the euro, but all this will now have serious repercussions on the relationship between Britain and the EU."

European leaders in Brussels hammered out an agreement that marks the end of unlimited fiscal sovereignty - and that conflicts fundamentally with the British understanding of Europe. The result of Thursday night - the 17 euro-zone countries joined by nine others pending parliamentary approval in three of the non-euro-zone capitals - is a success. A success for the majority of Europeans and for efforts to find a solution to the euro crisis. Any deal with the obstreperous British would have been a weak compromise, and one that would have allowed questionable economic practices to continue.

But from the very beginning, Great Britain's participation in a united Europe was a misunderstanding. When the EU was founded, the British still hadn't finished mourning over their lost empire. Europe seemed far away and Continental efforts at unification were seen by many among the British elite as little more than naive idealism. Despite such doubts, the EU became a reality, and a success - and it was economic realities that ultimately led London to join. Companies in the UK pushed the government toward Brussels because staying away was far too risky economically.

Still, the political classes in Britain never fully shared the Continental conviction that the European Union was an absolute political necessity following two destructive world wars in the 20th century. They never fully believed that Europe had to grow together, despite all the cultural, linguistic and societal differences. In the 1960s, the empire was history, with one colony after the other declaring independence. But instead of turning toward Europe, Britain looked west to the US. And to this day, the UK feels much closer to America than it does to the frogs and the krauts on the other side of the English Channel. One could see the strength of that bond as recently as 2003, when then-Prime Minister Tony Blair joined President George W Bush in his Iraq adventure despite grave misgivings on the Continent.

In Brussels, which has for decades been depicted in the British press as little more than a bureaucratic monster, London has mostly played but a single role from the very beginning: that of a spanner in the works. There has hardly been a decision aimed at greater European integration that Britain hasn't sought to block. And it was a role that even brought financial benefits. Ever since Prime Minister Margaret Thatcher famously demanded "I want my money back," Britain has had to contribute less to the EU than the size of its economy would otherwise require.

To avoid misunderstandings, it is important to note that Britain is a fabulous country, as are its people. Their finely honed humor, tolerance, composure, language, culture and, yes, their worldliness are all to be praised and envied. Germans particularly, with their predisposition to overwrought fear, could learn a lot from the British. But the UK and the EU was a source of frustration for decades. On the long term, a member cannot demand all of the benefits of a community while refusing to shoulder its share of the burdens. One can't constantly seek to thwart all efforts at greater European integration while at the same time demanding a say in all decisions.

The US Geological Service initially estimated the quake at magnitude at 6.8, but downgraded it to 6.7 and then 6.5. A quake of that magnitude is capable of causing severe damage, although the depth of this temblor lessened its impact. The USGS said the quake occurred at a depth of 40.3 miles. It was centered about 26 miles southwest of Iguala in Guerrero and 103 miles south-southwest of Mexico City. Mexico's Interior Department said the quake was felt in parts of nine states.

Humberto Calvo, undersecretary of Guerrero's Civil Protection agency, said three deaths had been reported in the state. He said one man was killed when a house's roof collapsed in Iguala, a second died in the small town of Ixcateopan and the driver of a cargo truck was killed by rocks that fell on the vehicle driving on the toll highway linking Acapulco with Mexico City. Calvo said a secondary highway between the two cities was blocked in two places by rockslides.

High-rises swayed in the center of Mexico City for more than a minute, and shoppers were temporarily herded out of some shopping centers until the danger passed.

Parts of Mexico City rest on the shaky soil of a former lake bed, which tends to magnify the effect of earthquakes. An 8.1-magnitude quake in 1985 killed as many as 10,000 people in the city.

Brave faces were put on, bluffs called, counter-bluffs revealed, vetoes wielded. Histrionics from France: Nicolas Sarkozy, poker-faced calm from Germany, Angela Merkel, David Cameron gambling the UK's place in Europe by opting to battle for Britain rather than helping to save the euro. When the dust settles, Friday 9 December may be seen as a watershed, the beginning of the end for Britain in Europe. But more than that - the emergence for the first time of a cold new Europe in which Germany is the undisputed, pre-eminent power imposing a decade of austerity on the eurozone as the price for its propping up the currency.

The prospect is of a joyless union of penalties, punishments, disciplines and seething resentments, with the centrist elites who run the EU increasingly under siege from anti-EU populists on the right and left everywhere in Europe.

"For the first time in the history of the EU, the Germans are now in charge. But they are also more isolated than before," said Charles Grant, director of the Centre for European Reform thinktank. "The British are certainly more marginal than before. Their influence has never been lower in my lifetime."

Whether or not the summit has saved the euro remains, of course, to be seen. At a single stroke, however, it has transformed Britain's place in Europe. With the fate of the currency at stake in the EU's worst crisis, Cameron opted for a fight and lost, placing the interests of the City of London before the European priority. Battling for Britain and wielding my veto in the Great British national interest, Cameron averred. There are senior UK officials who believe the prime minister betrayed the British national interest by picking the wrong fight at the wrong time, losing, and forfeiting a seat at the table that will determine the future shape of the EU.

"Cameron has miscalculated and performed rather badly. He didn't do well," said a senior EU official. If the main summit narrative was UK v EU, the frictions, anxieties and animosities generated by Germany's new ascendancy, however, extend much more broadly, enveloping France, Spain, Italy, Greece and others. Cameron went to Brussels saddled with backbench taunts of being the new Neville Chamberlain. The nasty references to the 1938 appeasement of Hitler, however, are not only heard on the Tory backbenches and in the Europhobic tabloids in Britain.

Nicolas Sarkozy, too, is contending with attacks from the right and the left that he has capitulated to Berlin and is being compared with the Frenchman who was with Chamberlain in Munich in 1938 - Edouard Daladier. In Greece, Italy and Spain the talkshows and newspapers are bristling with anti-German grudges, regularly bringing up the second world war, the Nazis, the alleged "Fourth Reich".

The refusal by David Cameron, UK prime minister, to agree to a full treaty change for all 27 EU members unless there were safeguards for UK financial services caused a standoff in the early hours of Friday morning with Angela Merkel, German chancellor, and Nicolas Sarkozy, French president. "I really don't believe David Cameron was ever with us at the table," Ms Merkel said. "We're very pleased with the result. Yesterday was no weak compromise for the euro."

"We wish them well," Cameron said. "My judgment was that what was on offer just wasn't good enough for Britain. It's better to allow those countries to do their own thing on their own." Despite the UK's refusal to sign up to the new agreement, Mario Draghi, the European Central Bank president, signalled his approval, a key vote of confidence that could allow the ECB to move more aggressively in eurozone bond markets. "It's going to be the basis for a good fiscal compact and more discipline in economic policy in the euro area members," Mr Draghi said.

Without agreement among all 27 countries, it remained unclear how the new fiscal rules the summit leaders promised to follow would be enforced. EU institutions - most importantly, the European Commission, which oversees and passes judgment on such rules in Brussels - legally cannot have a formal role in any agreement outside the EU treaties.