European Union leaders are locked in talks at a summit to tackle the eurozone debt crisis and save the single currency.
The summit started on Thursday and carried on late into the night. Talks will resume on Friday, with leaders expected to announce conclusions sometime in the day.
Leaders were previously discussing changes to the EU treaty to allow tough new budgetary rules for all countries. But French President Nicolas Sarkozy said the 17 eurozone states and others would work on a separate pact instead of a deal involving all 27 EU countries.
Earlier, United Kingdom Prime Minister David Cameron said an EU-wide deal "isn't in Britain's interests", as the UK does not use the joint currency.
A set of draft conclusions has been circulating in Brussels since Thursday. According to media reports, the draft text proposes a limit on structural deficits of 0.5 percent of GDP, compared with the present limit of 3 percent including debt repayments.
It also includes a way of increasing the firepower of the eurozone bailout fund above €500 billion (US$670 billion). But Germany has staunchly opposed this and other measures in the draft conclusions, showing that leaders are still far from reaching a deal.
Meanwhile, Germany and France are saying stricter fiscal rules should be introduced. Previously states were discussing this at the EU level, but it now seems talks will now focus just on the eurozone economies.
Under the original Franco-German proposal, the European Commission would have the power to impose penalties for nations that run excessive budget deficits. All 17 eurozone nations would have to amend their national legislation to require balanced budgets.
Countries would also have common corporation and financial transaction taxes.
Finally, future bailouts would not require private investors to absorb part of the costs, as happened in Greece.
The World is Watching
As German Chancellor Angela Merkel arrived at the summit venue in Brussels, she told journalists: "The euro has lost credibility and that needs to be restored."
"Never has Europe been so necessary. Never has it been in so much danger," said French President Nicolas Sarkozy. He added that the eurozone still has a few weeks to decide on measures, but that time was working against them.
"All the world is watching us," said Jose Barroso, president of the European Commission. "And what the world awaits from us is not more national problems but European solutions."
On Thursday, US President Barack Obama said he's "very concerned" about the situation in Europe. But he expressed optimism about Europe's ability to find a fix on its own.
"We're going to do everything we can to push them in a good direction on this," said Mr. Obama.
The European Central Bank has meanwhile cut interest rates back to their historic low of 1 percent, as expected by financial markets.
But Asian shares and commodities fell as markets opened on Friday morning, with investors questioning whether European leaders will really reach an agreement.
Report: Euro crisis: Summit abandons EU-wide treaty change [BBC, 9 Dec 2011]
Report: Europe summit: 'The world is watching us' [CNN, 8 Dec 2011]
Report: Tensions Rise at EU Summit [Wall Street Journal, 8 Dec 2011]
Report: Stocks & commodities fall as hopes for EU summit fade [Reuters, 9 Dec 2011]