European Union leaders met Thursday for their last summit of the year, taking a giant leap to put the economic crises behind them with a bank deal, but not at one over a vision of a common defence.
German Chancellor Angela Merkel highlighted the importance of pooling armament capabilities and coordinating defence policy while French President Francois Hollande suggested that Europeans could work together on building specific military equipment like drones.
But British Prime Minister David Cameron scoffed at the notion that the EU should have its own military capabilities, setting the stage for a fiery debate at the two-day meeting.
"It makes sense for nation states to cooperate over matters of defence to keep us all safer ... but it is not right for the EU to have capabilities, armies, air forces and the rest of it," Cameron said on arrival at the summit.
"We have to get that demarcation correct between cooperation which is right, but EU capabilities which is wrong," he said.
Making the case for a pooling of European defence resources, however, NATO chief Fogh Anders Rasmussen stressed that it "is not about creating a European army".
"It is about making sure that the countries of Europe are strong and capable. So that they can contribute to crisis management when they choose, and how they choose - whether it be through the European Union, NATO or any other way.
"Each country only has one set of forces, and one set of taxpayers. Duplication is a luxury we cannot afford," he said.
Giving a concrete example of defence cooperation, Hollande said: "There is the new generation drone, a pilotless drone which can be one of Europe's products."
Despite their differences, the 28 nations in the bloc agreed a landmark bank deal in the hours before the summit.
Drawn up after failed banks drove countries such as Ireland into bailouts and brought the continent's economy to a halt, the accord would result in one of the biggest handovers of sovereignty to the EU since the creation of the single currency.
It opens the way for a single body to police and wind up ailing banks, backed by a fund paid for by the banks themselves to avoid using taxpayer money.
All 17 countries -- soon to be 18 with Latvia joining next month -- sharing the single currency will be bound to the scheme while non-euro members have the option of joining.
The banking union is seen as a means to ensure stability in the eurozone, and proponents also hope it will help facilitate much-needed growth and jobs.
With fragile growth of just 1.1 percent and a stubbornly high unemployment rate of 12.2 percent expected for 2014, the eurozone is badly in need of a boost.
Message of support for Ukrainians
Invigorated by a third term as leader of Europe's biggest economy, Merkel has signalled her determination to push through unpopular EU reforms to secure the future of the 28-nation bloc.
Key among the reforms championed by Germany is a more centralised economic governance, with EU members compelled to meet certain fiscal targets, even if this requires treaty changes.
"We are among those who say that we must, if treaties are no longer sufficient, develop those treaties ... Those who want more Europe must be ready for new rules on some competencies," Merkel told the Bundestag on Wednesday.
Hollande has pushed instead for more pro-growth policies and less austerity.
Beyond defence and economic matters, the summit is also expected to look at the EU-Russia tug-of-war over Ukraine, where tens of thousands of people have taken to the streets to protest Kiev's decision to ditch a trade deal with the bloc, turning instead to Russia to rescue its economy.
EU sources said the leaders were expected to issue a message of support for the people of Ukraine while reiterating the bloc's readiness to sign a partnership deal with the former Soviet state once it feels ready.
But earlier on Thursday, Ukraine's President Viktor Yanukovych told Western powers to stay out of his country's political crisis, while insisting that Kiev's deal with Moscow did not contravene its path towards EU integration.