The French president has been persuaded not to try to dilute European Union (EU) competition law through the new EU treaty, the BBC has learned.
Mr Sarkozy appears to have backed down
As EU leaders discussed a draft outline, it emerged Nicolas Sarkozy got the words "free and undistorted competition" struck from the preamble.
This led to predictions France may use the treaty to justify state support.
However, sources in Brussels say a legally binding protocol will be added that protects existing competition law.
Defending French jobs
With Mr Sarkozy's change also remaining in place, he will be able to tell the French voters he has defended French jobs.
Tony Blair insists that free market economics will remain
The BBC has been told that this apparent face-saving exercise was brokered by the European President Jose Manuel Barroso, and that the UK's outgoing and incoming Prime Ministers Tony Blair and Gordon Brown were also central to the negotiations.
Tony Blair insisted that Europe's level playing field for business would remain unaffected.
"The protocol will make that absolutely and specifically clear," he said.
French President Nicolas Sarkozy has already said that there are 13 references to free market competition in existing EU treaties, so the EU's powers over competition would not be changed.
Leaders of the 27 EU states are meeting in Brussels to agree the main parameters for a new EU treaty.
A future conference would then decide the final text.
The treaty is designed to replace the planned European Constitution, which was rejected by both French and Dutch voters two years ago.