David Cameron
Frozen out: The prime minister risks becoming alienated from the eurozone. (Photo: Reuters)

The prime minister, David Cameron, intends to "safeguard" the interests of Britain at the EU Summit which begins tomorrow. But he risks upsetting both the German Chancellor and French President, Angela Merkel and Nicolas Sarkozy (known collectively as 'Merkozy') and the eurosceptic members of his party at home by doing so.

In the most critical european juncture in Britain's 40 year relationship with the EU, the International Business Times looks at the challenges Cameron faces and predicts what criticism will come from both "Merkozy" and the Conservative eurosceptics.

1. Implementation of the Eurozone Firewall

David Cameron has repeatedly called for a "big bazooka" to both stimulate growth within the eurozone and protect other EU countries, most notably the UK, from contagion. Despite strongly advocating the idea the prime minister has repeatedly refused to put any British taxpayers' money into the fund claiming it is for "the eurozone to sort out its own problems." Nevertheless, he has advocated the idea of putting money into the International Monetary Fund (IMF), which may be used for exactly the same cause.

What Merkozy will say: The UK needs to play its part as an EU member state and directly contribute through an EU Tobin Tax or directly invest into the Economic Financial Stability Facility (EFSF), both of which Cameron strongly opposes.

What his eurosceptic backbenchers will say: Britain already pays too much to the EU as it is, and however much this is spun, if the IMF will use British taxpayers' money to bailout eurozone countries such as Greece and Ireland.

2. The New EU Treaty

Cameron agrees with the German Chancellor, Angela Merkel, there needs to be tighter fiscal integration within the eurozone. Nevertheless he is likely use the treaty change as leverage and make a couple demands of his own. The challenge for Cameron is not to push Britain's interests to a point where no deal is struck at the EU in which case the eurozone crisis will carry on well into the new year and will continue to have a "chilling" effect on the UK economy.

What Merkozy will say: Likely to be frustrated by Cameron's demands, as the top agenda will be focused to integrate the eurozone into one fiscal union. A doomsday scenario for Cameron and Britain would to be locked out of all fiscal policy decisions within the eurozone if the 17 member states form their own deal (see point 3).

What his eurosceptic backbenchers will say: Depending on which Tory eurosceptic you talk to, this can vary from negotiating employment and immigration laws back to Westminster to a full blown departure from the EU altogether.

3. Britain's Place at Europe's Top Table

Arguably Cameron's biggest challenge will be to maintain a leading presence within the EU while also keeping a distance from the toxic single currency. Cameron has made it clear that "the more that the EU asks for the more Britain will ask for in return."

But the prime minister risks being frozen out by the 17 member states of the eurozone who may choose to ratify a "treaty within a treaty" in a similar template to the "Schengen Agreement".

What Merkozy will say: Will be keen to bypass the UKand introduce a treaty within the eurozone if the prime minister demands too much. This will change the relationship of the UK with the EU indefinitely and may pave the way for Britain to leave Europe for good.

What his eurosceptic backbenchers will say: If Britain is not a leading nation within the EU, backbenchers will question why the UK is in the EU at all. Although Cameron is an advocate of the single market, Tory MPs will point to other trade agreements has with other countries outside of Europe (see point 5).

4. Look After the City of London

The key prize for Cameron is to protect the city of London from any kind of Tobin Tax and persuade Merkel to use the ECB as a short term solution to raising liquidity for the eurozone countries. According to the Adam Smith Institute the City of London would end up paying 80 per cent of the total amount the tax would raise. Cameron has praised the financial sector calling it a "world class industry" and aim to get "greater power and control in terms of regulation".

What Merkozy will say: If Britain wants greater power and regulation, it won't be invited to the monthly meetings within the eurozone, which will alienate the UK, and make it look week on the international stage.

What the eurosceptics will say: If we want to have a true repatriation of powers to the UK financial sector, which Cameron admitted has been "attacked by Brussels with a whirlwind of regulations", then Britain needs to leave the EU completely.

5. Maintain the UK's relationship with the single market

Cameron has long supported, as former Conservative prime minster Margaret Thatcher did, the EU single market which has made it easier for British companies to trade with other EU countries. Today, the UK heavily relies on the EU as its main export region -over 40 per cent of its total export trade is to Europe. Furthermore, Cameron sees the export trade as the way to bring growth back to the UK economy and to avert a recession.

What Merkozy will say: Britain should not be able to get the best of both worlds by being in the EU without having to give up its policy of repatriating powers back to Westminster. Cameron has said, however, that any transfer of powers from Westminster to Brussels would trigger a referendum in the UK.

What the eurosceptics will say: The deeper eurosceptics are almost confused as to why their leader is so obsessed with the single market when the UK already has dozens of trade agreements all over the world outside of Europe. They see this as a week reason to start negotiating further powers from Westminster to Europe.