Napoleon dreamed of it, De Gaulle fought for it, but Nicolas Sarkozy may have achieved it -- a Europe of Nations with France in the cockpit and Britain on the sidelines.

The French president emerged as one of the big winners of a European Union summit on Friday which ended with up to 26 member states agreeing to move forward in economic integration around the euro zone, and Britain alone in staying out.

Of course this is not just a long-standing desire, but a long-standing goal of French politics ... because in the French tradition Britain never really belonged to the European Union, dating back to De Gaulle, said a senior EU official who attended the summit, referring to the French president's veto of British entry in 1963 and again in 1967.

By obstructing the wish of the other EU members to amend the bloc's governing Lisbon treaty to allow closer fiscal union among the 17-nation single currency area, British Prime Minister David Cameron managed to unite Europe against him.

He may be feted by Eurosceptics at home, but he emerged as the biggest diplomatic loser of the summit, leading his country into an isolation that all his predecessors sought to avoid.

For centuries, a basic principle of British diplomacy was to maintain a balance of power on the European mainland forming shifting alliances with the main continental powers.

Cameron not only failed to win a blanket veto right over EU financial services legislation. The illusion of leading a group of 10 non-euro member states like Sweden and Poland, committed to a more liberal, open economy, crumbled as his supposed allies threw in their lot with the euro zone.

Even though Cameron said the Dutch had promised to look out for Britain's interests in the EU's single market, the City of London financial centre could be a loser in a two-speed, 26-1 Europe, given the current low political standing of banks and hedge funds.

For German Chancellor Angela Merkel, the summit was a more ambiguous success.

Europe's most powerful leader achieved her primary goal of anchoring strict German-style budget discipline, with automatic sanctions on deficit and debt offenders, in a new treaty, to be negotiated among the 26.

That should calm rebels in her centre-right coalition angry at successive bailouts of euro zone weaklings in which Berlin guarantees the biggest share.

But Merkel failed to keep the new stability union inside the EU treaty, due to Cameron's obduracy, making it harder to use key institutions such as the executive European Commission and the European Court of Justice to enforce fiscal rectitude.

Furthermore, she may have lost Britain as a useful ally in balancing out French tendencies towards trade protectionism and state domination of industry, which run counter to Berlin's economic interests.

Merkel acknowledged in a major speech in Bruges last year that Europe may have to use intergovernmental cooperation to advance economic integration because of the limits of the Lisbon treaty, and the lack of political appetite for revising it.

But Berlin wanted to remove political discretion from the fiscal sanctions procedure, while France was determined to allow politicians the last word on any decision to punish a country for budget delinquency.

Sarkozy has had to give ground to Merkel on many issues in the last few months, accepting intrusive powers to reject national budgets and backing off on calls for massive European Central Bank intervention to buy government bonds and the issuance of common euro zone bonds.

But the French leader, never keen on EU enlargement which diluted Paris' influence, never abandoned a vision of a smaller Europe with the euro zone as its core, run by a Franco-German directorate.

Cameron's empty-chair diplomacy gave Sarkozy the chance to turn that vision in to reality.

Another winner from the Brussels summit was European Central Bank President Mario Draghi. Barely a month in office, the Italian has already exercised decisive influence, shaping the emerging euro zone fiscal compact behind the scenes, while warding off efforts to hijack the bank to bail out governments.

Diplomats said the ECB was closely involved in telling euro zone leaders what economic reforms and budget discipline steps they should take.

Hours before Draghi came to the summit, the central bank had taken two decisive steps to shore up the euro area, cutting its interest rates to a record low 1.0 percent to soften a looming recession, and crucially extending long-term liquidity help to Europe's cash-starved banks.

But the ECB chief managed to avoid pressure from euro zone leaders to intervene massively to buy troubled states' bonds, which he fears would immediately weaken their resolve to carry out painful economic reforms.

After watching former Italian Prime Minister Silvio Berlusconi back away from austerity plans and economic reforms he had promised to implement as soon as the ECB started buying Italian bonds in August, Draghi is determined to avoid a repeat.

So while Sarkozy may have gone some way towards realizing Napoleon's dream, it is Draghi, for now, who looks more like the new emperor of Europe.

(Writing by Paul Taylor; editing by Janet McBride)

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