Afloat … for now: Tensions resurface over Eurozone's basic tenets,

TANKS rolled through the centre of Brussels as European leaders gathered in the city to negotiate a deal to bail out Greece, whose debt mountain had threatened the future of the euro.

The display of military might on the streets of the EU capital was to mark Belgium's national day but it added to the sense of crisis engulfing the Eurozone countries. Europe stood on the brink of triggering a second worldwide recession. The Bank of England pointed out that the cost of mortgages and business loans in the UK would soar in the event of deadlock. British banks have more than 200 billion tied up in Europe's five weakest economies and would suffer huge losses if any were to default or in the nightmare scenario of the euro collapsing.

The UK may not be part of the euro but it is far from immune from the impact of the world's second most-used currency - that, collectively, of our biggest trading partners. Fifty per cent of Britain' exports are to the EU. Barack Obama called the German Chancellor Angela Merkel to underline the threat to the global economy if Eurozone leaders failed to agree a package of measures to restore confidence in the currency. There may be nothing unusual in a British chancellor trying to fire a shot across the bows of France and Germany by telling their leaders to "get a grip", as George Osborne did, but it is rare for such a stark warning to be effectively backed by the head of the European Commission.

Jos Manuel Barroso added his voice to the cacophony of warnings when he made it clear to the quarrelling leaders that the consequences of not reaching an agreement would be felt in "all corners of Europe and beyond". Merkel's desire to protect German taxpayers from the effects of a second bail-out for Greece was quickly put in perspective. From the corridors of the EU institutions to the Oval Office in the White House, the message was clear; act not in the narrow domestic interest but in the interests of the world economy.

Failure at Thursday's summit was simply not an option. Without a bail-out package, Greece would have defaulted on its 299 billion debt, causing widespread panic in the markets. That would have triggered a crisis in the other Eurozone countries with high debt levels. Attention would inevitably have turned to the chances of Portugal and Ireland defaulting and it is likely the contagion would also spread to Italy and Spain. Such a catastrophic chain of events would have inevitably led to the break-up of the euro as the stronger countries abandoned the currency, unable to shoulder what would by then have been a bill close to 1.75 trillion for a rescue attempt involving all five debt-ridden countries.

A key feature of the rescue package agreed for Greece is the expansion of the role of the European bail-out programme - the European Financial Stability Facility. This will ensure that the euro is supported by what amounts to a fledgling European Monetary Fund. Such a mechanism is required to stabilise any currency but it was deliberately eschewed by the founders of the euro, who feared it would encourage profligate behaviour, particularly from the southern-country members. The absence of an adequate bail-out fund only serves to underline the economic rather than political nature of the single currency project. As ratings agencies accepted the bail-out as only a "restricted default" - an important signal to the markets - the economic project of the EU appears to be back on track, in the short term at least.

The potential scale of this crisis was too great for David Cameron and George Osborne to sit on the sidelines muttering "told you so" warnings. With a rescue package now in place, the eurosceptic Tory party finds itself in the bizarre position of arguing for closer European fiscal integration to underpin the future of the euro. In a reversal of years of opposition to the idea, the prime minister now appears to be content to allow the Eurozone countries to move towards a United States of Europe - adopting a common economic policy. This would mean a more closely integrated tax and spending policy, and greater scrutiny of their national budgets by Brussels. The Eurozone, in time, could also be able to issue its own euro government bonds. However, as the immediate economic crisis subsides, it is the future of the political project, which bonds together 27 countries across Europe, which appears to be facing greater uncertainty. Just as economic contagion appears to have been prevented, political contagion appears to be spreading.

Cameron is now seeking to present the idea of a two-speed Europe as an opportunity for Britain. He believes that in return for backing a stronger union among those countries bound together by the euro, the UK can extract further exemptions from the existing union in return for its constructive approach. Cameron has been quick to point out that Britain was exempted from the bail-out mechanism needed by Greece.

The prime minister's relaxed attitude to a two-speed Europe is music to the ears of the ranks of the Tory Eurosceptics and received a warm response from members of the backbench 1922 Committee. But it exposes a deep fault line between the Tories and their Lib Dem coalition partners. Nick Clegg, a former Euro MP, has warned the UK must not "dislocate" itself from the EU. In a clear warning to Cameron, he said: "I don't think it helps at all, when we are looking at what comes out of the discussions on the reform of the Eurozone, to prioritise what we think we can kind of get out of it. This is about us working with our Eurozone colleagues because it is massively in our interests to do so."

It is not just in the UK that hostility exists towards the EU project. Denmark, like the UK, is outside the Eurozone. Amid fears over immigration it has reintroduced border controls, against Schengen rules which created borderless zones within the EU. Finland, a once enthusiastic Eurozone country, has seen the rise of a far right anti-EU party deeply hostile not only to the EU but also to the euro. About a sixth of the European Parliament is now openly eurohostile and another sixth deeply sceptical. This does not just point to a loss of faith in the project, but also has real practical effects

The package of measures agreed at the last summit aimed at dealing with the aftermath of the financial crisis is currently deadlocked in the European Parliament. The proposed legislation, which includes tougher penalties for countries which run up large debts, was defeated by a combination of the left, who opposed it for being took weak, and by the Eurosceptics who are against further EU control as a matter of principle. Although 17 of the 27 EU member states now share the euro, the currency which was designed to bring nearer political harmony, pro-Europeans fear the crisis which has engulfed it may have exactly the opposite effect.

The renewed uncertainty over the euro and of the EU itself may affect the SNP-led government in Edinburgh's preparations for holding a referendum on independence, at the heart of which is its independence in Europe policy. Alex Salmond has promised a referendum on entry to the single currency, pledging to keep sterling initially in the event of winning independence. However, the SNP may find that it starts its debate about the benefits of independence in the EU just as Brussels is being accused of taking away more power from nation states.

Economist John McLaren said: "This deal is not the last word. By the time the SNP get round to holding their referendum in two or three years' time the EU could be very different. I don't know what the picture will be, but it will not be what we are looking at at the moment."

The tanks which circled the EU institutions during the historic summit may not have posed a real threat, but the prospect of border guards looms large as some EU countries look to protect their national interests in the wake of the European uncertainty.

Bail-out viewpoints

There will be opportunities for Britain to maximise what we want in terms of our engagement with Europe... I got us out of the (euro] bailout mechanism which has been used repeatedly and from 2013 cannot be used again, so I think I exacted a good and fair price for Britain going ahead with this treaty change. Are there more things we're going to be able to do? Yes, I think there will be opportunities."

PM David Cameron on using the Eurozone crisis to renegotiate Britain's relationship with Europe

"I don't think it is right at all for us to immediately start speculating: 'Oh can we get this back, can we get this back, can we demand this price, can we demand that pound of flesh?' This is about us working with our Eurozone colleagues because it is massively in our interests to do so."

Deputy prime minister Nick Clegg, arguably at odds with his coalition partner on the next step for Britain in the EU

"We are crystal clear that PSI (private sector involvement] is for Greece and Greece alone. It is an exceptional situation that we exclude for others."

European Commission president Jos Manuel Barroso, hinting that the second bailout was a one-off and other countries should not expect more help

"We seem to have been pulled back from the abyss. Eurozone Armageddon does thankfully seem to have been avoided."

Simon Ballard, senior credit strategist at RBC Capital Markets

"There is a great breath of relief for the Greek economy and this will gradually pass on to the real economy. But by no means does this mean we can relax our efforts."

Greek finance minister Evangelos Venizelos

"Our ambition is to seize the Greek crisis to make a qualitative jump in the construction of a system of economic governance of the Eurozone.

French president Nicolas Sarkozy