Thursday 23 November 2017

Cameron 'Veto' Garners Kudos in U.K., EU Scorn

U.K Prime Minister David Cameron's decision to stand aside from a pact to allow euro-zone governments to move toward tighter central control of their budget affairs was depicted Sunday as "bad for Britain" by his coalition government partners and, in Europe, as a defeat.

Cameron 'Veto' Garners Kudos in U.K., EU Scorn

Mr. Cameron's popularity appeared to receive a boost at home, however. And he is expected to repeat in the House of Commons on Monday that his move isn't the start of a process of British disentanglement from the European Union, said a person familiar with the matter.
 
As some analysts predicted the decision could set the U.K. on a slippery slope toward exit from the EU, there remained a more immediate concern: how the European Central Bank will react to the summit agreement for euro-zone countries to move toward closer fiscal union.
 
It will be months, at best, before the pact goes into effect, but governments hope their summit agreement is solid enough to provide a reason for the ECB to start more-aggressive purchases of the bonds of troubled euro-zone governments.
 
According to a poll published in Britain's Mail on Sunday, 62% said he was right to wield his "veto" to an EU treaty, with 19% disagreeing. The online poll by Survation interviewed 1,020 people. "The EU now knows that this Prime Minister can say 'No,'" said John Redwood, a euro-skeptic former Conservative minister, on his blog.
 
German media characterized the summit's outcome as a clear victory for Chancellor Angela Merkel that left the U.K. marginalized. "Merkel succeeds—Great Britain isolated," read the weekend front page of Süddeutsche Zeitung, a leading German daily.
 
Some analysts said the split could have important long-term consequences. "Britain is as isolated as it's ever been in the 25 years I've been following the EU," said Charles Grant, director of the pro-EU Centre for European Reform. "If I had to put money on it now, I think Britain will leave the EU in the next 10 years."

The prospect that Britain could distance itself further from the EU adds another challenge to the unity of the 27-nation bloc presented by euro zone's debt crisis.
 
With the answer to the debt crisis almost unanimously viewed as an ever-closer union among the 17 members of the euro zone, some analysts view Britain's growing estrangement as an inevitable consequence.
 
Britain's refusal to back treaty change at last week's summit left the other 26 EU members to pursue an agreement among themselves to create more-restrictive rules on budget deficits and automatic sanctions of budget miscreants for the 17 members of the euro zone and others who volunteered to join them.
 
The divisive issue was a British "shopping list" designed to protect the City of London and its big financial-services industry. It sought guarantees that some decisions on future Europe-wide regulation would be agreed on the basis of unanimity among the 27, rather than by a qualified majority that could theoretically see Britain outvoted.
 
But the proposals, of which diplomats said other leaders had been given little or no advance notice, struck many present as an effort to protect banks whose actions were at the root of the crisis.
 
"We thought financial services was the right thing to focus on," said Mats Persson, director of the euro-skeptic think tank Open Europe. "But he didn't prepare the ground in advance."
 
The start of treaty negotiations was the wrong time to present a list of detailed demands; instead, Mr. Cameron should have focused on general principles, leaving more specific negotiations until later, Mr. Persson said.
 
Many diplomats in Brussels were asking exactly what the U.K. had achieved by its stance. Having secured no concessions over financial services and a major loss of goodwill from other EU countries, its main consequence seemed to be a less-solid euro-zone fiscal agreement than might have been the case.
 
"It's disastrous for the City," said Mr. Grant. "Now it's more likely that the 26 will caucus against Britain on financial regulation."
 
Britain wasn't being asked to participate in the tighter fiscal union. It was only being asked to agree to allow others to do it. But that was still a problem for Mr. Cameron because it would have required a vote in the House of Commons.
 
Because of a likely rebellion among the euro-skeptic wing of his own Conservative Party, Mr. Cameron would probably have had to rely on the opposition Labour Party for support, a serious political embarrassment.
 
Non-British diplomats said that during the summit, it dawned that the British might not want a deal at all.
 
They said Herman Van Rompuy, the EU president who chairs the meeting, suggested a compromise to change an annex of the treaty, rather than the treaty itself. This approach may not have flown anyway because of opposition by Germany, but Mr. Van Rompuy had argued in a presummit report that it could be agreed by a unanimous vote of the 27 leaders and not need ratification by national parliaments.
 
Mr. Cameron, however, continued to press for concessions, leading Mr. Van Rompuy to push for an accord without Britain.
 
This, several senior diplomats said, played into the hands of French President Nicolas Sarkozy. He hadn't wanted a full-blown EU treaty change because that would have shifted power away from national capitals to the European Commission, the EU executive, and the European Court of Justice.
 
It also provided an opportunity for Mr. Sarkozy to pursue a long-held French ambition: to advance a smaller union, without Britain and some Eastern European states, in which France would have more influence.
 
Diplomats said the decision of most of the 10 non-euro-zone countries to sign up with the pact would mar any French celebrations, though it would isolate the U.K. all the more.
 
In Brussels, the sense that the British had been bested offered some short-term satisfaction to diplomats in a city where they are often seen as spoilers.

Behind this, however, lay concerns that the split could signal the start of a progressive British disengagement from the EU and a weakening of impetus to sustain the one EU achievement the British seem to value: the single market.
 
Britain has natural allies in Scandinavia and in Eastern European countries such as Poland, which could together act to counterbalance to France's vision of a smaller, more state-directed EU.

However, these leaders decided to throw in their lot with Germany and France, deciding that was in their best interests.
 
Mr. Persson said the U.K. has been unable to build a network of allies because it has no strategy, a failing he said predates Mr. Cameron.
 
The British prime minister was hoping to keep the EU off the domestic political agenda during his first term in office, not least to avoid a clash with his pro-European Liberal Democrat partners. "This kind of defining moment caught him off guard a bit," he said
 
Without Britain, the EU is likely to become more inward-looking and the single market could well erode, said Mr. Grant.
 
To the extent that the U.K. weakened prospects for handling the euro-zone crisis effectively, it may also have been unhelpful for the British economy, which has a major stake in the economic health of the euro zone.
 
Euro-zone borrowers owed British banks more than $1 trillion at the end of June, according to Bank of England data, with borrowers in France leading the pack at $291.6 billion. Of the currency area's more-troubled economies, Irish borrowers owed $157.4 billion while debts owed by borrowers in Italy, Spain, Greece and Portugal together exceeded $215 billion.
 
Seven of the top 10 British export markets are in the euro-zone. However, the U.K. imports more than its exports to these countries and a big deficit in goods is partly offset by a surplus in services, including those provided by its financial sector.
 
Britain now faces "a horrible dilemma," says Mr. Persson. It could try to block the policing of the fiscal pact by the Commission and the ECB, since they are institutions of the 27, or try to secure concessions again in the talks over coming months. But given the U.K. has a strong economic interest in keeping the euro zone on the road, it needs to take care, he said.