In a cry for help, Italy and Spain joined forces Thursday, blocking a key EU deal on growth failing swift pledges from their partners to fight off market pressure threatening their economies.
The strong-arm tactics spoiled a crucial two-day summit set to end Friday with a deal on a growth pact aimed at breathing life into Europe's flagging economies and sealing splits between the bloc's 27 nations.
While European Union heads of state and government announced an agreement to inject 120 billion euros ($150 billion) into cross-border infrastructure projects that would create much-needed jobs, they were unable to finalise a so-called "growth compact" due to the stand by Spain and Italy.
Madrid and Rome have seen their borrowing costs soar as markets lose confidence in their ability to reduce huge deficits.
"There are two countries that are very keen to ensure there is agreement on long-term measures and short-term measures," EU president Herman Van Rompuy told a news conference after seven hours of talks.
"I wouldn't say there is a blockage, discussions are ongoing," he said.
Officials from both countries said Spanish Prime Minister Mariano Rajoy and Italian counterpart Mario Monti had tied backing for a growth pact to their demands for short-term measures to bring relief on the bond markets.
"We have no reservations on the substance, but we want it to be part of a larger solution, the long term must be linked to the short term," an Italian official said.
Direct intervention by the eurozone rescue fund in bond markets was the focus of negotiations among eurozone treasury officials on the sidelines of the summit.
"We are in favour (of the growth pact), it is necessary, but it is not urgent. What is urgent and more important for us is the sustainability of the debt," a Spanish official said.
The growth pact was expected to sail through the summit after the leaders of Germany, France, Italy and Spain announced a tentative deal on the issue last week.
But with investors charging ever higher interest rates to lend to Rome and Madrid, Monti, backed by France and Spain, has called for the eurozone's rescue fund to buy his country's bonds in order to reduce their borrowing costs.
German Chancellor Angela Merkel, however, is cool on the idea and insists that any intervention by the European Financial Stability Facility (EFSF) must be accompanied by reforms in the countries getting the help.
Ratcheting up the pressure, Rajoy warned his country could not long withstand high borrowing costs imposed by bond markets and cautioned that key bodies were running out of cash.
"There are many Spanish public institutions that cannot finance themselves," he warned on the sidelines of the meeting.
Just hours before, Italy had to pay higher rates on five and ten-year debt, amid ongoing market tension as the crisis creeps from the edges of the eurozone to the centre.
"There will be a domino effect across all of Europe. We need emergency measures," said Belgian Prime Minister Elio Di Rupo.
French President Francois Hollande called for "very quick solutions to support the countries facing the biggest problems in the markets."
The EU leaders meanwhile were continuing tough talks on proposals to further integrate their economies, measures pushed by Germany to centralise control over budgets in the hope of preventing wayward spending.
Among integration proposals mulled at the summit is a banking union with a centralised supervisory body, joint deposit guarantee schemes, and the means to wind up failing banks.
France has pressed for the eurozone to consider pooling debt by issuing so-called eurobonds, but Merkel opposes the idea, stressing that budget discipline must become the norm across the bloc first.