Last week’s Summit will go down in history. Following the Prime Minister’s treaty veto, the EU17-plus-six, probably backed by Hungary, the Czech Republic and Sweden, will battle on with their rescue plans for the euro. The fanciful notion that Britain could lead the “outer 10” as a counterweight to the EU17 was summarily despatched. Britain will be “isolated”.
Even though the proposed monthly meetings of the EU17+6+3 will constitutionally be restricted to taking decisions solely with regard to euro matters, it is inevitable that they will take decisions that will affect UK interests. One example immediately springs to mind. It is the very issue that was behind the rift between Britain and the rest of the EU last Friday morning, namely the City of London. It is now glaringly obvious that the City, which many of us still regard as an asset of immense economic importance, is being prepared as the scapegoat, the sacrificial lamb, for the ills of the Eurozone. It is now clear that President Sarkozy, supported by Chancellor Merkel, attribute the Eurozone crisis to the speculative Anglo-Saxon capitalism that caused the crash in 2008 rather than the euro’s inherent structural flaws. Britain and the Wild West ways of our Anglo-Saxon financial markets, predatory and anti-communautaire, are being groomed to take the blame if/when the Eurozone finally falls over.
Britain will therefore be outside the tent when the problems of the Eurozone, inextricably interlinked with our financial services industry, will be discussed. There are no prizes for concluding this will mean more stifling EU regulation for us. Indeed this would be no more than a continuation of what we have already. Open Europe released a report (pdf) last Monday which concluded “regulation is now less geared to financial services growth but more towards curtailing financial market activity, irrespective of whether such activity is good or bad”. There were 49 new EU regulatory proposals potentially affecting the City either in the pipeline or being discussed at EU-level, with very few aimed at promoting financial services trade. The UK was moreover already losing influence on the legislative agenda. Tellingly, this was happening at a time when opportunities in EU markets were limited whilst global opportunities were “exploding”.
Suffice to say that Britain’s influence on other key policies from agriculture to the EU Budget can only diminish as the EU26 pursue their vision for the EU, whilst Britain sits uncomfortably outside the arrangement. “Isolation” will change Britain’s dynamic with the rest of the EU. The recognition of this inevitability, painful though it will be to some, is long overdue. We can now have a clean debate on the future of Britain and the EU. The notion that Europe is moving “our way”, despite conclusive evidence to the contrary since 1973, and that we are highly influential and supported by several like-minded countries, has been finally blown to the skies. We are outnumbered 26-1 and peripheral. The notion too of reforming the EU from within was always difficult to align with reality. It is now being consigned to history.
The status quo is no longer sustainable. We need a “Global Vision” fit for the 21st century, involving a relationship with the EU based on trade and bilateral agreements, rather like Switzerland’s. The Prime Minister’s wholly reasonable veto at last week’s Summit was a giant step towards a global future for Britain with a much looser relationship with the EU, whether he intended it or not. This is not a Eurosceptic view. It is one that bows to the new reality.
The Summit was, of course, primarily about “saving” the euro. Suffice to say the agreement was much as expected. It broadly comprised a rehashed Stability and Growth Pact with (almost) automatic sanctions for miscreants, budget surveillance and the bringing forward of the new €500bn European Stability Mechanism (the permanent rescue fund). There were no fiscal transfers, no Eurobonds, no Eurozone Treasury and no significant extension to the ECB’s bond buying programme. The absence of a new-style major bond-buying spree was perhaps the most surprising. Market expectations had been building up that the ECB would oblige, but ECB President Draghi poured cold water on the idea on Thursday.
The EU’s response to the Eurozone’s plight remains therefore quite inadequate and, although it really shouldn’t need saying, I’ll say it, absolutely nothing to do with the British Prime Minister’s veto at the Summit. The currency union remains dysfunctional and vulnerable. The weaker southern countries, facing a triple whammy of recession, austerity and a prolonged lack of competitiveness, are no more supported than they were prior to the agreement. And the risk remains that the markets will attack a peripheral state’s debt in coming weeks, particularly if a rating agency provides an excuse. Draghi’s disciplined resolve not to bail out governments would then be challenged. Standard and Poor’s credit ratings agency warned last week that they may downgrade the debt of 15 of the EU17 countries (excluding Cyprus and Greece, already at rock bottom) if the Summit disappointed. They may well act on their warnings. Even the six triple-A Eurozone countries, Austria, Finland, Germany, Luxembourg, the Netherlands and France were warned, with France the most vulnerable.
So we continue to watch the Eurozone’s dance of death with grim fascination. When the cracks finally appear, Britain, the City and our Prime Minister will have to be prepared for the flak.