One of the problems with major European politico-economic events, such as the UK veto on fiscal measures wielded by PM David Cameron last weekend, is that it is hard to unravel what actually happened. As is often the case, we have a German view, a French view, a UK view, and then a European Commission and an European Central Bank view. Each slant is coloured by anonymous briefings and insider leaks.
The UK Conservative Party view, well spun in the Daily Telegraph, is that it is all the fault of the French and, to an extent, the Germans.
The UK line seems to go that, in refusing to provide safeguards with a solid legal and ‘voting-method’ basis over financial sector regulation, a financial transactions tax and EU-based budget controls, France and Germany made it impossible for the UK to agree in outline to a new treaty.
The French line seems to be that the UK presented a list of demands late in the day, through formal official channels not via the political negotiating forum already established, and which included proposals for voting unanimity as a way of blocking future potential changes it may not like the detail of. The UK position was therefore seen as not constructive – and seen as an insufficient basis for further negotiation.
Taking the different positions and other reports of the process together, however, it is hard to avoid the conclusion that neither the French and Germans on the one hand, nor the British on the other, were strongly motivated to come to an agreement. MEPs from different countries with good insider knowledge seem to support this view. There is some recent history behind this.
During 2011 Merkel and her economic team ,and Sarkozy and his economic team, both came to understand more fully the extent to which Cameron had boxed himself in over EU policy with his own party. They began to understand that his style in government was one of ‘Chairman’ – mediating between political factions whilst favouring the views of civil servants, but without having any particular ‘red lines’ of his own. They understood that the anti-EU and pro-US right wing of his party were becoming more agitated and prone to blame Cameron for failing to win a majority and thus having to put up with a Coalition with the Liberal Democrats. With Cameron’s position under threat his ‘Chairman’ style meant that he had to swerve to the right and appease his anti-EU party bloc – as he had done in 2010 when he pulled his party out of the European Parliament’s People’s Party bloc.
They found over the previous months that Cameron’s negotiating position on a range of EU-related issues was fluid and unreliable, since he did not pursue stable red lines and negotiating positions, being buffeted by political forces within his own party. By the time the Eurozone-plus approach to longer-term financial discipline was emerging from the firefighting period, the French and Germans had become despairing about Cameron. Assuming it would be futile to spend time and effort coming to an agreement on ‘in principle’ treaty changes that the British could agree to, they set about ensuring first that the UK would declare its veto early, and second that the concerns of the other 24 EU members were addressed.
In order to ensure this, and with detailed analysis of the Pavlov’s dog responses of Cameron’s Eurosceptics, the fiscal integration rhetoric was ramped up, and intransigent-sounding statements on financial transaction taxes were made. Flimsy proposals to move institutions out of London were designed purely to irritate. It was easy to predict that ‘Chairman Cameron’ would bow to pressure from his salivating Euroskeptics, and box himself in even further. Bingo. He declared his veto early and flew home to a dinner at Chequers where he was duly toasted by his anti-EU and pro-US right wing colleagues. His dinner guests seemingly had no idea that the hapless Cameron had been fully outwitted.
To those that are dismissive of this little narrative, I would point out that it is very unlikely indeed that the Eurozone will implement the kind of transaction tax that would be detrimental to the City of London financial district. In the event, future Pan-European financial and banking regulation is very unlikely to be incompatible with UK-based financial regulation, bearing in mind European countries are committed to Basle III – and in any case UK-based regulation is still under a significant reform process. Proposed new fiscal rules for the Eurozone (and those outside it in a revised ‘Stability & Growth Pact’) are likely to end up with automatic penalties for breach of rules which will be little different from the old fiscal rules. In any case the UK had signed up to the old Stability & Growth Pact. In addition, new rules to try and prevent hidden state spending and debt will be brought in, so that Eurozone members cannot fudge the figures as some have done. None of these reforms, in fact, would necessarily be problematic for the UK as a non-Eurozone member. The UK also had much to offer in helping to bring in pro-growth Pan-EU rules which did not ‘throw the financial baby out with the bathwater’. But that is now lost.
However, if Cameron had a different relationship with the French and Germans they could have easily provided more forensic (and less broad-brush) assurances on the UK’s in-principle concerns. The French and Germans however, having drawn their conclusions about Cameron and his political position and style, were not inclined to help him out of the hole he had dug for himself.