A summary of this week’s shenanigans in Brussels

December 11, 2011 12:30 pm

If you are in favour of the UK remaining a Member State of the European Union, this week’s summit was a disaster. If you want Britain to leave the EU there are some reasons to rejoice. It’s that simple.

The agreement is that the 17 Member States of the Eurozone, plus 6 others (Bulgaria, Denmark, Latvia, Lithuania, Poland, Romania) will conclude between them a Treaty outside the formal EU structures in order to guarantee the long term stability of the Eurozone. Czech Republic, Hungary and Sweden may eventually join too. This gives Angela Merkel and Nicolas Sarkozy precisely what they wanted, albeit with some additional legal complexity in terms of how this will work with the EU institutions.

David Cameron achieved nothing he supposedly set out to achieve. His proposal – to add a Protocol to a new Treaty that would change the decision making processes for how legislation of financial services (i.e. the City of London) is agreed at EU level – was rejected by the Member States of the Eurozone [document explaining the contents of that here]. Opposition was strong enough to mean that a Treaty among the 17+6 was preferable, and Cameron was aware of this threat.

There are a number of facts to note.

A reformed Treaty applying to all 27 Member States would not have had any impact on regulation of the financial services industry, neither positive nor negative – fiscal rules for government spending are not the same as regulation of the banking industry.

Second, the agreement for a Treaty for the Eurozone+6 means the decision making processes for passing financial services legislation remain the same as they always were. So nothing that Cameron has achieved over the last few days has protected the City of London at all. This is a failure to achieve his stated objectives.

Failure of the negotiations may actually have been Cameron’s real objective all along, to demonstrate increasing isolation of the UK from the European Union and to appease the EU-phobes on his backbenches and in the press. Yet the result, and the manner in which Cameron approached the negotiations, will have a profound impact for the UK in the short and medium term.

Short term, Cameron has expended the last reserves of good will he had among other EU leaders. Traditional allies such as Denmark and Poland did not stand with him, while the inflammatory language used by both Cameron and Sarkozy post-summit has stoked tensions further.

Medium term the danger for the UK is that the 17+6 caucus against the UK; a summit is not a one-shot game, but one meeting as part of a long series. By playing all of his cards now – and not achieving his objective to protect the City – Cameron will have even less leverage over that issue, and indeed any issue, at summits in the future.

To reiterate, Cameron achieved nothing to protect the City, but managed to sideline the UK. I defy anyone who wants Britain to remain a Member State of the European Union to find a way to frame this as a good thing. If you want the UK to be isolated or to push the UK towards exiting the European Union then there is reason to celebrate.

Beyond the negotiating position of the UK, is the agreement struck by the 17+6 actually any good? As Sony Kapoor has pointed out here (PDF), it may sort out the longer term problems of the Eurozone, but it does not deal with the problems of debt burdens and bond yields in the short term. Secondly, by enshrining in law a commitment to balanced budgets, rigid fiscal discipline and automatic penalties, this represents nothing short of a Eurozone austerity pact. With stuttering growth and rising unemployment, it is highly doubtful this is the economic recipe Europe needs.

  • ghj

    Are you saying the Financial Transaction Tax which would hammer the City of London (35%) now and in the future will still go ahead? So the EU can slaughter our Financial Services and there’s nothing the UK can do about it? Financial Services are 1/5 of our economy.. So, according to you, Cameron should have just signed the Treaty..interesting, if not at all surprising, how Miliband won’t say whether he would have signed the Treaty..and why are the French saying that “Britain will pay dearly” (typical French diplomacy) if Cameron’s veto has no influence whatsoever?

  • Anonymous

    Do you really think that the British people would stand for our fiscal policy to be referred to Brussels before the Chancellor could present it in a Budget to  the House of Commons?

    Decisions on tax and spending must be the responsibility of a democratically elected government not a Brussels based EU dictatorship.

    • Anonymous

       It will take some special type or moron to persist on Monday with proposing a policy the vast number of people seem to  disagree with, without even the benefit of it being rational, or morally defensible.

      The quotes from Shadow Front Benchers on Friday will be forgotten quickly then.

      EM’s was so ‘nuanced’ it could have meant anything, but has been interpreted in the least favourable way. That’s what happens if you’re not clear and the Press is generally hostile.

      The others fell for rent-a-quote-oppose-everything line. Best to let the Lib-Dems vent their mock rage instead, and only applaud when it makes sense.

      • Dave Postles

        Presumably White Tom instead of Black Tom, then?

        • TomFairfax

           Actually I prefer Robinson’s Old Tom. Anyway I’ve found out about Disqus profiles.
          I’m curious about the Green view, as clearly all that shipping goods to and fro from countries is not desirable for their idea of local self sufficiency whether it’s Germany or Russia. Are they agnostic on the EU or not?

          • Dave Postles

            I’ve no idea.  The Green Party was the last refuge of a scoundrel as I just couldn’t abide the Blairite continuity programme.  I just pay a subscription.  I’m more committed to the informal action.  Have you read Andrew Hopper’s book on ‘Black Tom’?

          • TomFairfax

            No I haven’t. I’ll look it up. Sounds a bit literary for me though.

          • TomFairfax

            Moderators a bit slow on yesterdays stuff.
            Do you know the author? Seems about the only book on the 3rd Lord of Cameron on Amazon.

            Now a book on his wife might be interesting, because she seems to have had quite a strong influence on his decisions to neither make war on the Scots or pass judgement on the man he so conclusively beat in the rebellion.

          • alex williams

            But have you enjoyed young tom. You can actually drink that in pint quantities!

          • TomFairfax

            No I haven’t. Must be better than Unicorn though.

          • TomFairfax

            No. I haven’t. Is it any better than Unicorn?

          • alex williams

            I thought so at the time. Not always available tho.

    • Dave Postles

      We not a member of the Eurozone.

      • GuyM

        But the proposed treaty has all sorts of nasty potential implications and EU form is pretty clear that once you give the EU certain powers they almost inevitably end up using them.

        Case in point the proposal to make all financial transactions classed as having been carried out in the Euro area… hence a Tobin tax would apply. There is no other large target for that sort of proposal than the City.

        • Dave Postles

          Well, it’s the Eurozone, so the implications are secondary and consequential, not principal.  The only disadvantage, according to comments which I have read, would be for some sections of the secondary trading market and banks such as Deutsche Bank which have a presence in London, but those banks are already in deep trouble because of the latest stress tests on German banks. 

        • http://twitter.com/jonworth Jon Worth

          Erm, that’s wrong too. Because EU decisions on taxation would still have required unanimity, so the UK could still have vetoed an eventual FTT, with or without a treaty for 27.

    • http://twitter.com/jonworth Jon Worth

      Erm, no, that’s not what the deal said… because the rules would apply to the Eurozone, whether this was a Treaty signed by 27 or by 17+6. So you’re point is wrong.

  • Anonymous

    Jon,
    The whole fuss about one veto in one conference has the appearance of trying to make a crisis out of a drama.

    For the less introspective of readers please consider some things not so prominently reported here;
    The East German survivor and her government are fighting on two fronts currently,
    1) The inability to get China , the UK, or anyone else to pay to salvage the Euro, instead of Germany the main benefactor, which is known in the UK,
    2) The bank scandal that broke end of October where it turns out a bank rescued by the government was found to be 55billion euros to the good, in place of the 55billion loss they’d previously announced before the government paid to help them out. This has caused dismay within Germany and calls for her to go.

    So DC vetoed contributing to a Euro rescue fund that Germany can afford rather more easily than is widely understood here, and which everyone else has passed on because the Euro zone members even now haven’t proposed taking effective action, just making nice noises about enforcing the rules they agreed in the Maastrict treaty!

    It’s surely possible to be pro-EU but not pro-pouring good money after bad to provide more time for some of our partners to prevaricate further.

    If it isn’t then I’m afraid we’d be like those idiots rioting in the summer, who were just copying what their mates were doing, as some sort of way of absolving them thinking for themselves.

    • Dave Postles

      2) That phenomenon has happened throughout the western world, sadly.  Commerzbank is reported to be in serious trouble, according to the most recent stress tests (The Independent today).  Most banks have not yet marked their assets to market, especially their sovereign assets, and Commerzbank is wildly undercapitalized, without even considering its leverage position.  All the US banks made profit from Fed funds because they were borrowed at 0.1% interest, I believe, so they all restored their positions.
      1) If the Euro collapses, it’s curtains for us too.
      The issue was surely the ‘protection of the City of London’, but it transpires that at issue was only a fraction of financial services.  I’m not quite sure what additional contributions (‘pouring good money after bad’) would be involved – I haven’t seen anything about that at all.  If the Euro collapses, the consequences will be catastrophic.  Apparently, our contributions do not leave us in much deficit and the figures which have been bandied about are exaggerated.
      Many commentators have also referred to the position of the US which had observers at the meeting.  Apparently, the US is less than happy as well as European politicians. 
      I fear the repercussions will be considerable – and it seems that some business people already consider that to be the case too.

      • TomFairfax

        Fair comment. We’ll have to see.

        The Euro has been hamstrung by what the ECB is ‘allowed’ to do, and that is an issue that needs to be dealt with, not them breaking the rules as freely as some of the member states.

    • http://twitter.com/jonworth Jon Worth

      Did you actually read the piece I wrote?

      Either there would have been a flawed Treaty agreement for 27 to stabilise the Eurozone, but with no financial commitment from the UK. Or there is what we got: the UK sidelined, and the same deal but for 17+6 instead.
      You might rightly argue that the solution proposed might not save the Euro. But it would not have saved the Euro if 27 had reformed the Treaties, or 17+6 do. Conversely, the financial implications for the UK are identical either way.

      • http://twitter.com/Newsbot9 Newsbot9

         I disagree. The 17+6 are now *actively annoyed* with the UK.

        • M Cannon

          The 17 + 6 (or some of them) are “actively annoyed” that we were right about the Euro and they were wrong.

          • derek

            Well, we really can’t not let Cameron and co loose on the international front, Cameron just fails to grasp the notion of negotiating, from his disaster on NHS reforms and pensions too the world cup failing bid and the EU veto, Jeez! if this coalition is to work they better let Clegg and Cable do the negotiating.

      • TomFairfax

        Oh dearie me. Don’t like the comment attack the person not the content. All very Old Blairite, and not to the point.

        So your idea is side with the majority regardless.

        How do you think this mess got started in the first place?

        Old A.Einstein is quoted as suggesting that using the same methods that caused the problem in the first place isn’t likely to provide the solution.

      • TomFairfax

         The key point here is whether the Euro in it’s current form is possible to save at all.

        The current proposals merely suggest making another treaty with the same rules that were broken before re-stated. Pointless prevarication.

        What you are suggesting is going along with the rest so as not to upset them by pointing out the absence of clothes on this particular emperor.

        At the same time. what you propose seems overwhelmingly unpopular with the people,  who are promised a vote on any new treaty.

        It may make good short term political sense to some, but it can hardly be seen as supportive to the concept of Europe in the longer term.

        The centrepetal forces acting on the Euro zone aren’t going to be fixed by advocating dither, indecision and wishful thinking.

        Labour is in danger of being seen to be more interested in keeping the good opinion of those in Germany and France, than our own nations subjects. So precisely how many votes do you think we’ll gain from them?

    • alex williams

      Still suggests a massive failure by the PM to play a strong hand on these terms. Surely if there is enough amunition out there he could have pulled some of the other nations on to his side, or at least appeared like a voice of reason in not signing. Instead his prattling on about saving the city is bad PR all round given most of the country’s view of the city of London’s role in the present financial disaster (whether fair or not).

      • TomFairfax

        I don’t disagree with you.
        But I think too much effort is being made to appeal to the remaining Lib-Dem voter instead of determining how Labour should appear to be the sensible option for people.

    • alex williams

      The fundamentil question remains. Do we see ourselves as part of a wider Europe and thus throw our lot in with the Euro’s survival, a kind of ‘all in it together’, or do we see a conceivable way of making it alone? As time goes by the question becomes tougher and tougher, but what is for sure is that if we end up deciding to go with Europe (we may end up having little choice who knows) the pill will be a lot more bitter by the Conservative party’s failure to be involved in actually shaping Europe by engaging effectively with other countries over the last 50 years. We have often appeared petulent and obstructive over at times the wrong things. We have allowed EU leaders of the past to talk european, but avoid having to actually walk the walk, which they knew would be unpopulr amongst their own electorate, because good old UK could be scape goated for them ‘not being able to make th progress they wanted’. How often did the UK veto things that the majority of other states probably did not want, but could pretend they supported it for other favours, knowing that the UK would do it anyway.

      • TomFairfax

        It really depends on whether you think DC has triggered a real crisis or not.

        I think the ‘city’ is too narrow for DC to defend convincingly to a majority, but are we saying well let others dictate the UK budget.

        EM might have been a bit cleverer in this if in the same position, but I can’t think we’d have accepted the deal as described and not lost support.

  • jaime taurosangastre candelas

    There’s surely a third (middle way) course, Jon, that of wanting the UK to be a proactive and positive member of a trading bloc.  The choice of being independent outside of Europe or merely the north west region of part of Europe is surely not the only one.  No need for Euro parliaments or commissioners or van Rompuys or Barrosos or eurocrats or External Action Services or paying for a new motorway in Romania, just a trading bloc.  Romania can pay for its’ own motorways, and all of the rest of the examples can contribute to some positive outcomes by not existing at all.

    • http://twitter.com/jonworth Jon Worth

      No, there is no third way. The EU – as it is – has common institutions that make common rules. You play within those rules or you do not. Free Trade Bloc – Norway style – is OUT. It may be a soft-ish out, but it is still out.

      • jaime taurosangastre candelas

        @ Jon Worth, with respect, I don’t agree.  You say that there is no other choice, and of course in a strictly literal interpretation of the current situation that is indeed the case.  But I think we all – including Euro leaders – need to step back and take a wider view.

        The single currency is not unending.  It could be stopped, with all currencies reverting to their entry point and then freely floating.  Those common euro institutions can be closed.  The Roman Empire did not last forever, nor the British Empire, nor will the USA world hegemony, nor will the Chinese hold sway forever in the future.  A USE is not inevitable, nor if it ever exists be enduring forever.

        What we have is a very small number – maybe less than 1,000 – dedicated supporters of a federal Europe pushing for that solution without allowing any democratic debate.  Leader writers in Das Spiegel are now openly advocating that, which is a significant change from one week ago, when they only hinted at it.

        If we want to look at things in a binary way (I don’t but others may), of the 2 results, which is more likely?  A United States of Europe by 2020, or the disorderly breakup of the Euro area by 2020?  My instinct is with the disorderly breakup, and while that will undoubtedly cause pain and recession, that will be the price paid for those 1,000 selfish little Napoleons wanting to achieve their aim without consulting the people.

        If we allow shades of grey and a spectrum of results, I think that a return to a single trading area is more likely than either binary result, and a welcome forecast.

    • alex williams

      There is a myth that all the money goes one way. Plenty of development money comes back in. True we are a net contributor but it is probably worth the price in terms of trading opportunities alone. Now if we could get a gvt committed to supporting the right kind of businesses more to tap into this market…. How about helping companies like JCB get their share of those Romanian road building contracts for a start.

      • http://twitter.com/Newsbot9 Newsbot9

         Bear in mind that because of the EU rebate, the government is on the hook for a proportion of those funds. Then you wonder why they don’t support bids for EU funding.

        Talk about a perverse inventive!

        • alex williams

          The back door to bankrupt the gvt….

          • http://twitter.com/Newsbot9 Newsbot9

            It’s not THAT large scale a potential liability. But it’s still a perverse inventive which explains a lot about the Government’s tactics.

          • alex williams

            Twas a joke. Sorry forgot
            :cough:

  • http://twitter.com/wordenreport Worden Report

    It is interesting that the Commission rather than the Council will enforce the new “pact” or competency.  I wonder if Cameron will object to this. Basically, is the new “pact” part of the EU or separate?  Was this question even decided at the meeting?  Perhaps the state governments have too much power at the EU level. Eg., the plan that Sarkozy and Merkel brought to the meeting. See, for instance, my essay at http://thewordenreport.blogspot.com/2011/12/plan-fortifying-states-role-in-eu-or.html 

  • M Cannon

    If the fundamental question is whether we shoould throw in our lot with the Euro’s survival or do something else, the answer is easy.  A real no-brainer.  The Euro is going to fail, whatever we do.  So we should not throw in our lot with it.
     
    The problems which afflict Eurozone countries have not been resolved by last week’s agreement which is mainly directed at putting in place a more effective version of the Stability and Growth Pact.  That pact required members to have a deficit of no more than 3% of GDP and a national debt of no more than 60% of GDP.
     
    It was, of course, largely ignored.  France, for example, has been in breach of both requirements since 2003!  Germany has been slightly better, although not by much.  Its national debt has been over 60% of GDP since 2003 too, but, in the years since 2003 it has managed to have a deficit of less than 3% twice (in 2007 and 2008).
     
    Romano Prodi dismissed the Pact as “stupid” when President of the Commission in 2002 and, surprise, surprise, it was never properly enforced.

    Now a revived version is put forward as the solution to the current woes of Euroland.  Too little too late, I fear.

    Meanwhile, Rome is burning.

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