Friday, December 09, 2011

Britain on the edge of Europe

By Charles Grant

The outcome of the Brussels summit on December 8th and 9th is a disaster for the UK and also threatens the integrity of the single market. For more than 50 years, a fundamental principle of Britain’s foreign policy has been to be present when EU bodies take decisions, so that it can influence the outcome. David Cameron, the prime minister, has abandoned that policy. Britain will not take part in a new fiscal compact that most other EU countries will join.

France and Germany have persuaded the other eurozone countries that treaty changes are needed to enshrine stricter budget policies and closer economic policy co-ordination. The new procedures would apply only to countries in the euro. Most member-states wanted to enact those reforms through amending the existing EU treaties. That would ensure that countries in the euro, and those outside, would be subject to a single set of rules and institutions.

But Britain blocked that deal, pushing France, Germany and most other member-states to proceed with a new treaty, to sit alongside the EU treaties. The new treaty may face difficulties: the Irish may hold a referendum on it and could easily vote no. But Paris and Berlin are determined to press ahead with the fiscal compact and if the Irish vote against it they are likely to find themselves excluded.

Cameron blocked a treaty for all 27 because he could not obtain agreement on a protocol to protect the City of London. This protocol demanded a switch from majority voting to unanimous decision-making on a number of issues that matter for the City, including the extension of the powers of EU regulatory authorities, and rules that prevent national governments from imposing stricter requirements on bank capital.

Cameron was right to seek to protect the interests of Britain’s hugely important financial services industry. Most financial regulations are decided by qualified majority vote, and there is a risk that new EU rules could damage this vital national interest. However, Britain has never yet been outvoted on a significant piece of EU financial regulation. If Cameron had been prepared to compromise on his demands, he might have been able to secure a deal.

But France’s president, Nicolas Sarkozy, was annoyed by Britain’s demand for special treatment, and had no desire to do the City favours; indeed, after the summit he said that a lack of regulation of financial markets was responsible for many of the current problems. Other heads of government found Britain’s demands and the way it presented them unreasonable. They also complained about the lack of British diplomacy: the British Treasury took its time to draft the protocol and did not present it to the Council of Ministers legal service until the day before the summit. The British made no effort to sell the protocol to most of the member-states. In short, there was little goodwill towards Cameron.

As far as I can gather, the UK government’s position stiffened between the morning of December 7th and the evening of December 8th. At the start of that period, Cameron seemed to want a deal, as his article in The Times indicated. But then loud rumblings from Conservative eurosceptic backbenchers – and calls for a referendum from two cabinet ministers and London Mayor Boris Johnson – made the Conservative leadership reluctant to show flexibility. Some senior Conservatives worried that if the government accepted a new EU treaty it would struggle to push it through Parliament. Many Tories would have rebelled and it probably would have passed – if at all – only with Labour’s support, thereby humiliating Cameron. That is why some senior figures in the government did not want a deal in Brussels.

But Britain’s so-called veto – which has not stopped anything from happening – seems likely to damage its interests. For a start, the government failed to achieve any sort of protection for the City. The countries taking part in the new arrangements (between 23 and 26 member-states are likely to adopt them) will meet regularly and discuss economic policy. They are also bound to talk about single market issues such as financial regulation. In theory, single market matters will still be settled by all 27. In practice, the countries in the new club are likely to caucus and pre-determine the results of EU votes on single market rules – whether they concern the City or other matters.

In the new arrangements, the Commission and the European Court of Justice will almost certainly play a diminished role. That is because France and Germany, the dominant countries in the fiscal compact, are hostile to the Commission and favour a more ‘inter-governmental’ Europe. To the extent that these institutions are weaker, they will be less able to do their job of defending the single market and ensuring that all member-states are treated fairly.

Some British eurosceptics seem to imagine that the new club will not be allowed to use EU institutions without Britain’s permission. There are likely to be complicated law-suits, but if most member-states want the Commission and the Court to play a role in the fiscal compact, these institutions will play a role. The institutions will have to try and reconcile two sets of rules and procedures, which will make it harder for them to do their job of policing the market.

What if the eurozone countries want to harmonise banking regulations, which they may need to do in order to ensure the success of the euro? Britain would not support a centralised system of banking regulation, but could easily be outvoted. Rules on banking regulation, like other single market issues, will remain subject to qualified majority voting among the 27. But if Britain wants to win votes, it will need allies.

I can never recall Britain being so friendless in the EU. Countries that might be sympathetic to the UK, such as Denmark, the Netherlands, Poland and Sweden, have grown impatient with the Cameron government. They have always wanted Britain to be influential in Europe, to balance the power of France and Germany. They would have much preferred all 27 countries to stay together. Britain’s self-exclusion has left them disappointed. Many of the smaller member-states are unhappy: when EU institutions weaken, they are more likely to be pushed around by France and Germany.

Since it joined the EU in 1973, Britain’s impact on the EU has been positive in many ways. It has pushed for legislation to bring about the single market. Together with France, it invented EU defence policy and it has contributed a lot to EU external policies, in areas such as the Balkans, Iran and climate diplomacy. It has helped to maintain the EU’s Atlanticist orientation. It has encouraged the EU to look outwards and see globalisation more as an opportunity than as a threat. With Britain’s voice diminished, the EU is less likely to deepen the single market and more likely to be inward-looking.

It is conceivable that a different British government could seek to reverse this disastrous opt-out. More likely, Britain will continue on a path towards isolation, perhaps even leaving the EU itself.


Anonymous said...

Unfortunately, the Bulldog Spirit has worked - the bulldog is stubborn and not exactly a creature that is associated with intellect.
With now 26 countries working as a group, Britain is left with only 29 votes (8.4% of the total votes) when it comes to qualified majority decision about banking regulation in the EU. This means the City can no longer be protected.
The only logical step for Cameron is now to abandon the EU completely and seek bilateral agreements.I can't see any EU country wanting to stop the exit.
Cameron has overplayed his hand and has fallen into the trap.

Anonymous said...

Hi Mr. Charles Grant,
I think the Britain did correct under its past and present conditions. Some EU countries have some potentiall wrong mentalities where you need to evaluate and determine them first of all before trying to move to another step. I mentioned about some of them in my book "Ülkeler Birliği (Countries Union)" in my Facebook:Refet Ramiz address. I suggest you to take a look at it.
Dr.Refet Ramiz

Eleana Kazakeou said...

I believe this shows where all the internal debates stem from. The inability of the EU27 to reach agreements on many subjects in underlined to a large extend by the British tendency to oppose everything that might jeopardize their national interests, without taking into consideration that a stronger Union might actually strengthen their foreign policies, and enhance their global impact.

The UK is fundamental to Europe's economic well-being, and any discourse from a common action will hurt the UK more than benefit it.

Michael Johnson said...

This analysis is spot on and desperately disquieting. As a veteran of years of EU negotiations I am certain that with more subtle and better informed negotiating techniques, and without the strident posturing, Cameron could have got a deal at the EU-27 level which included adequate protection for the city. Instead he got nothing and lost much, much more, leaving Britain, as John Major put it at Chatham House last month, on the fringe of Europe and "shouting in through the door". Indeed I am even more pessimistic than the article, because the agreement at the level of the 17 will take time to negotiate, may be further delayed by British-inspired haggling over institutional issues, and when implemented may well not be enough to preserve the Euro which will collapse anyway, exposing the UK to calamitous economic knock-on effects. And all to please Bill Cash. Big deal.

Julie W said...

This from a government that includes the most pro-European of the three main polical parties. Another nail in the coffin for Lib Dem influence and a bitter lesson for those who favoured the alliance with the Tories.

Anonymous said...

What can pro-European Britons do to prevent this lamentable outcome, with not a single political party in the country seemingly committed to a European future?

I wish I knew...

Prof. Don C. Smith said...

As an American who watches this from afar, this is a sad day for the United Kingdom and the European Union.

Europe risks becoming less relevant in a world that really needs the voice and point of view of Europe on so many issues. While the EU struggles, Brazil, China, India, the U.S. will move on, none the better I might add if the EU is not at the table.

For the UK this is an amazing time. A country that has contributed so much to the betterment of the EU now heads for the sidelines. I hate to say this but the U.K. will be nothing more than a middlin country if it spends much time on the sidelines.

David Cameron seems to have bowed to the U.K. version of the loony Tea Party in the U.S. as well as the City of London.

Nick Wright said...

The tragedy for me is that this was entirely avoidable. Talk to anyone in the 27 Permanent Representations or the institutions in Brussels and you will very likely hear them say how influential Britain can be, and how much they respect the efficiency and effectiveness of our negotiating.

Cameron's no in the small hours of Friday morning is a huge blow not only to our place in Europe, but to the structure of multilateral relations through which we exercise influence internationally. We have been left looking vulnerable and weak.

Whose national interest is that defending?

nic said...

You can always tell a German,
But you cannot tell him much.
If finance were just rocket science
You would'nt need to tell him much.
" V2 haff cures for Euros trouble:
Reduce der City again to rubble.
Mit bottled-out Vichy France on board
We'll soon pour Club Med down the drain.
Then einmal noch we'll turn back East
And on the Russki's markets feast.
As for the sandwich in between-
A Magyr, Polski, semi slavic horde,
Let's hope the meat is good and lean.

B.B.Q. Grill Parser.

wlstncrft said...

I find your reassurances that somehow the UK would not find itself isolated if it has accepted the 27 treaty. You state that "Britain has never yet been outvoted on a significant piece of EU financial regulation". Some reassurance to bring back to the UK.

Michael Rossetter said...

This lunatic decision by Cameron has left me totally frustrated. How or what can any supporter of Europe do now to get the UK back to the EU table where it belongs and use its voice to make the EU work for all member countries?

packers and movers ludhiana said...

making such a stupid decisions is a old habbit of EU.

Mark Greenwood said...

Charles is spot-on. The point about the EU is that it is fundamentally a political project. The issue of protecting the City is just that a detail. Decades of careful balancing of national interests, of back-room deals, of endless meetings to resolve conflicts have ensured that the EU, however clumsy, does function. What we mustn't forget is that it has ensured over 60 years of peace and progress from the Atlantic to the Black Sea. This is what Cameron flippantly throws away as a bone to the bulldogs

Anonymous said...

The Tragedy is not the UK's alone. It is bad for the other 26 that the UK is not on board. The amendments to the treaty were centred on the need to tighten and harmonise Fiscal control. There was no need to reject the UK's requests for protection for the City. But the UK voice was not heard. Clearly the UK has no or little influence within the EU. While other countries take on board exactly what they have signed up to and the hard discipline and austerity it will cause, many will start to look at the UK's position (within the EU but outside the EURO mess) with envy. It would have been better if the 26 listened to the UK and took in her requests.

Myself said...

What a ridiculous situation. Cameron simply (and I use that word advisedly) wanted to look 'strong' & acted with no integrity, sense or decency. I am furious with him.