13/12/11
Britain and the EU summit: Europe's great divorce | The Economist
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Charlemagne's notebook
Britain and the EU summit
Europe's great divorce
Dec 9th 2011, 8:03 by Charlemagne | BRUSSELS
WE JOURNALISTS are probably
too bleary-eyed after a sleepless
night to understand the full
significance of what has just
happened in Brussels. What is
clear is that after a long, hard and
rancorous negotiation, at about
5am this morning the European
Union split in a fundamental way.
In an effort to stabilise the euro
zone, France, Germany and 21
other countries have decided to
draft their own treaty to impose
more central control over national
budgets. Britain and three others
have decided to stay out. In the coming weeks, Britain may find itself even more isolated.
Sweden, the Czech Republic and Hungary want time to consult their parliaments and political
parties before deciding on whether to join the new union-within-the-union.
So two decades to the day after the Maastricht Treaty was concluded, launching the process
towards the single European currency, the EU's tectonic plates have slipped momentously
along same the fault line that has always divided it—the English Channel.
Confronted by the financial crisis, the euro zone is having to integrate more deeply, with a
consequent loss of national sovereignty to the EU (or some other central co-ordinating body);
Britain, which had secured a formal opt-out from the euro, has decided to let them go their
way.
Whether the agreement does anything to stabilise the euro is moot. The agreement is heavily
tilted towards budget discipline and austerity. It does little to generate money in the short term
to arrest the run on sovereigns, nor does it provide a longer-term perspective of jointly-issued
bonds. Much will depend on how the European Central Bank responds in the coming days and
weeks.
Some doubt remains over whether and how the "euro-plus" zone will have access to EU
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institutions—such as the European Commission, which conducts economic assessments and
recommends action, and the European Court of Justice, which Germany hopes will ensure
countries adopt proper balanced-budget rules—over Britain's objections.
But especially for France, on the brink of losing its AAA credit rating and now the junior partner
to Germany, this is a famous political victory. President Nicolas Sarkozy had long favoured the
creation of a smaller, "core" euro zone, without the awkward British, Scandinavians and
eastern Europeans that generally pursue more liberal, market-oriented policies. And he has
wanted the core run on an inter-governmental basis, ie by leaders rather than by
supranational European institutions. This would allow France, and Mr Sarkozy in particular, to
maximise its impact.
Mr Sarkozy made substantial progress on both fronts. The president tried not to gloat when he
emerged at 5am to explain that an agreement endorsed by all 27 members of the EU had
proved impossible because of British obstruction. “You cannot have an opt-out and then ask to
participate in all the discussion about the euro that you did not want to have, and which you
also criticised,” declared the French president.
With the entry next year of Croatia, which will sign its accession treaty today, the EU is still
growing, said Mr Sarkozy. “The bigger Europe is, the less integrated it can be. That is an
obvious truth.”
For Britain the benefit of the bargain in Brussels is far from clear. It took a good half-hour after
the end of Mr Sarkozy's appearance for Mr Cameron to emerge and explain his action. The
prime minister claimed he had taken a “tough decision but the right one” for British
interests—particularly for its financial-services industry. In return for his agreement to change
the EU treaties, Mr Cameron had wanted a number of safeguards for Britain. When he did not
get them, he used his veto.
After much studied vagueness on his part about Britain's objectives, Mr Cameron's demand
came down to a protocol that would ensure Britain would be given a veto on financial-services
regulation (see PDF copy here (http://dl.dropbox.com/u/46265023/Uk%20%2009%20Dec%202011%2001-01.pdf) ). The British government has become convinced
that the European Commission, usually a bastion of liberalism in Europe, has been issuing
regulations hostile to the City of London under the influence of its French single-market
commissioner, Michel Barnier. And yet strangely, given the accusation that Brussels was taking
aim at the heart of the British economy, almost all of the new rules issued so far have been
passed with British approval (albeit after much bitter backroom fighting). Tactically, too, it
seemed odd to make a stand in defence of the financiers that politicians, both in Britain and
across the rest of European, prefer to denounce.
Mr Cameron said he is “relaxed” about the separation. The EU has always been about multiple
speeds; he was glad Britain had stayed out of the euro and out of the passport-free Schengen
area. He said that life in the EU, particularly the single market, will continue as normal. “We
wish them well as we want the euro zone to sort out its problems, to achieve stability and
growth that all of Europe needs.” The drawn faces of senior officials seemed to say otherwise.
The 23 members of the new pact, if they act as a block, can outvote Britain. They are divided
among themselves, of course. But their habit of working together and cutting deals will,
inevitably, begin to weigh against Britain over time.
Mr Sarkozy and Angela Merkel, the German chancellor, have given notice of their desire for
the euro zone to act in all the domains that would normally be the remit of all 27
members—for example, labour-market regulations and the corporate-tax base.
Britain may assume it will benefit from extra business for the City, should the euro zone ever
pass a financial-transaction tax. But what if the new club starts imposing financial regulations
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pass a financial-transaction tax. But what if the new club starts imposing financial regulations
among the 17 euro-zone members, or the 23 members of the euro-plus pact? That could begin
to force euro-denominated transactions into the euro zone, say Paris or Frankfurt. Britain
would, surely, have had more influence had the countries of the euro zone remained under an
EU-wide system.
It says much about the dire state of the debate on Europe within Britain's Conservative party
that, as Mr Cameron set out to Brussels, another Tory MP portentously invoked the memory of
Neville Chamberlain, who infamously came back from Munich with empty assurances from
Adolf Hitler. Mr Cameron may have made a grievous mistake with regard to Britain's long-term
interest. But at least nobody can accuse him of returning from Brussels with a piece of paper in
his hand.
(Picture credit: AFP)
Read more: Bagehot's take on Britain falling out of the EU
(http://www.economist.com/blogs/bagehot/2011/12/britain-and-eu-0)
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