To everyone’s shock, the 8th European Council summit of the year heralded something momentous, though it was not the prayed-for saving of the Eurozone but David Cameron’s wielding of the mythical British veto like a modern day Excalibur.
But we have to question why was a ‘veto’ used? The proposed modifications of the Lisbon Treaty were supposed to provide the legal certainty for a fully functioning fiscal union because the German constitutional court, amongst others, would not have accepted a halfway house solution using constitutional wheezes. British Ministers have been at pains to emphasise over the last year that Eurozone integration was in Britain’s interest as long as it didn’t directly affect us. Nothing on the table required Britain to ‘surrender’ power to the EU or should have triggered a referendum.
We are now left with a legally dubious arrangement whereby 26 members will move forward with a treaty based on the Lisbon treaty of 27. How on Earth can this provide the legal certainty necessary to restore the markets’ faith? How will this stand up to a legal challenge? The unanswered questions saturate this half-baked solution. In short, Cameron’s ‘veto’ has jeopardised the survival of the Euro.
But Dave had to bring some sacrificial lambs to his Bulldogs. Thatcher had her hand bags, Major had his opt-outs, Blair and Brown had their red lines, so what about Dave? A veto? Not even Maggie had used one of those.
Dave reverted to stereotype and chose to ‘defend’ those sterling chaps in the city of London. The government’s policy effectively amounts to a prioritisation of the interests of London and the South-East to the detriment of the rest of the country. What’s worse, Cameron did not succeed in creating his cherished anti-federalist forcefield to protect the City. His demands were as unreasonable as they were ludicrous and this can only lead to one conclusion that, as Angela Merkel put it, Cameron was not really at the table. He asked for a level-playing field for the Single Market between Eurozone and non-Eurozone members, and he was granted it. But this was not enough, he went further and demanded unanimous decision making in Council on aspects of financial services legislation, some of which has already been ratified or is currently being negotiated! For other heads of government, assembled to try and save Europe’s economy, these demands were understandably offensive and rightly thrown out.
Before the Crisis, Britain benefited greatly from financial services liberalisation in the EU under qualified majority voting (QMV) which allowed more liberal countries like the UK to overcome the objections of more protectionist countries like France, e.g. on the Market in Financial Instruments Directive (MIFID). However, now that the proposed regulation is not to the City’s taste, the QMV system must go. The most frequent example used to justify this attitude of ‘us vs them’ is the proposal for a financial transaction tax but this example is fundamentally flawed since the UK still has a veto on tax policy. Excalibur can be wielded again.
Financial services are a central component of the Single Market and the British demands reek of hypocrisy and special pleading. Imagine if Germany demanded unanimity on environmental legislation to protect its polluting industries, Spain on fisheries or France on agriculture. It is contrary to the basic principles of the EU where rules must benefit all countries and not just the privileged few. Furthermore, the Crisis has shown that financial services cannot be adequately supervised in twenty seven different ways and EU-wide liberalisation must be matched by EU-wide rules within appropriate flexibilities.
In all of this, the role of the European Parliament has been completely ignored (yes, it does exist). The UK would never have been able to exercise a veto over financial services or enforce its demands because the Council is only a co-legislator and its partner, the European Parliament, must agree to every piece of financial services’ legislation. Any deal hatched up by Cameron would have to be agreed with the Parliament which has no discernable interest in bending over backwards to appease his City cronies.
It is also important to underline that the veto was utterly ineffective and counter-productive for those wanting to defend the City. The UK has not gained any safeguards for the City since financial services legislation will still be decided in Council by QMV and in Parliament by a simple majority. Examples where the UK has been able to exert its influence to vastly improve legislation, such as the AIFM directive (which regulated hedge funds among others), are unlikely to be seen again. From now on, UK officials will likely be seen scrambling behind their European colleagues begging to have readouts of meetings which they were not invited to.
Cameron’s ‘veto’ has achieved many things. It made an effective solution to the Eurozone crisis less likely, it failed to protect the City of London from ‘Brussels power grabs’ and it has locked Britain out of the negotiating room. Perhaps most alarmingly, it has relegated British foreign policy to the service of the footloose financial services industry. An in/out referendum looms and this will probably be remembered as the first step towards the withdrawal of Britain from the EU. For our City friends, there is some comfort; if you want to live in a country free from EU regulations and dominated by the financial services industry, it will no longer be necessary to move to Switzerland.
Euro Lib Dem works somewhere in the European sphere of LibDemmery and is writing in a personal capacity.
Follow @libdemvoice.org on Bluesky
Like us on Facebook
Subscribe to our feed
Sign-up for our daily email digest
Have a goat day tomorrow!
Thinking of standing for election or re-election next year? Helpful questions to consider
The Joy of Six 1528
Endometriosis and acetylation
How Chancellor Reeves torpedoed the economy
Mick Taylor
Tristan Ward
cim
Tim Boura
14 Comments
Great post and one of the few pieces I have seen which actually discusses what Cameron did. It is quite amazing that most news outlets give no explanation at all of what exactly Cameron was “vetoing” (an exception is the FT). It should be a matter of shame for the BBC that they have fallen down in their duty to explain to the public.
I think popularity would soon sink once it was clear although you can’t help feeling that we were mugs for allowing Cameron to go with such a negotiating strategy without a fallback position…
So what you’re saying is that in exchange for not signing up to a treaty that was an affront to democratic governance, was widely held to be utterly inadquate to its purpose, and was basically just an EPP-stitch up, the European Parliament and Council are going to intentionally try to cripple a British industry worth more than £50 billion in yearly tax receipts to the UK treasury?
If there was an in/out referendum, the European reaction to Cameron’s actions and the revelation of how little influence Britain actually has (regardless of who is doing the negotiating) has made me think, for the first time in my life, that maybe we would be better off out.
“We are now left with a legally dubious arrangement whereby 26 members will move forward with a treaty based on the Lisbon treaty of 27. In short, Cameron’s ‘veto’ has jeopardised the survival of the Euro.”
Don’t be ridiculous, the markets are hounding the euro-nations because those nations are unwilling to put their money on the table, I don’t think i have ever heard such revisionist clap-trap!
As to why the ‘mythical’ veto was wielded……..
While this new treaty had nothing to do with the City of London directly, there is a whole raft of stupid and dangerous legislation that threatens to be imposed by QMV in the near future, and done so under the guise of solving the economic crisis and making amends for having caused it. So I would direct all to section 2.2 of the following document:
http://www.openeurope.org.uk/research/continentalshift.pdf
In order to fend off this imminent ‘attack’ on our free-wheeling Anglo-Saxon model of capitalism (irony alert), Cameron took the opportunity on Thursday night to ask for the following:
• Any transfer of power from a national regulator to an EU regulator on financial services would be subject to a veto.
• Banks should face a higher capital requirement.
• The European Banking Authority should remain in London. There were suggestions that it might be consolidated in the European Security and Markets Authority in Paris.
• The European Central Bank be rebuffed in its attempts to rule that euro-denominated transactions take place within the eurozone.
France and Germany said no, so we said you must go on about your rescue without us, there is £50b/year in tax revenue from the City and HMG will fight to keep collecting it!
Everything has a value as well as a price. Cameron used the threat to impress upon Merkozy the value we attribute to the City, and how it far exceeded the price they thought it worth. They still didn’t back down, but that is the way of such things sometimes, compromise not always being possible.
Francis, the treaty content and mechanisms are far from finalised so I think it is impossible to say for certain at the moment that it is not fit for purpose. However, I agree that the accompanying democratic reforms do not appear to be on the table at the moment and this has to be rectified with proposals such as an elected Commission President or Eurozone finance minister. I dare to say, that the UK wouldn’t have hesitated in vetoing such measures.
On your second point, it is not a case that the EP and the Council will deliberately go out to sabotage the UK. The difficulty is that the member countries of the new treaty, if it happens, will meet regularly (once a month has been floated) and their discussions will inevitably include issues decided under the Lisbon Treaty of all 27 EU countries. The UK will not be in those meetings and will not be able to influence the discussions as effectively as they are now (at the moment they are very influential as one of the ‘big three’ with France and Germany). As with all legislative files, the positions that the national governments take in the Council affects the debate and positions taken in the EP so again the UK influence will be diminished. This is especially so because less than 30 British MEPs (Labour, Lib Dem) sit in the three largest political groups in the European Parliament which is less than Romania. The Tories and UKIP sit outside the tent. I do not think this means that other countries will sabotage the UK (except maybe France) but it will lessen the likelihood that they will worry as much about the UK’s particular interests.
I wouldn’t get too upset about the attitude of Sarkozy and other critics of the UK. If everyone in other European countries did the same towards the attacks from UK politicians and media then they’d have a stroke.
Jedibeeftix, I agree that Cameron’s veto is not the central reason why the Eurozone is in trouble. However, I was trying to illustrate that it did have an effect broader than just the UK’s relations with the EU in that it undermined one of the three necessary planks for solving the Eurozone crisis. The first and, for the short term, most important measure is to stump up the necessary cash and turn on the ECB taps for struggling members, the so-called big bazooka. This treaty is the second plank which looks towards a proper functioning fiscal union for the future. Germany and others were unwilling to do the former without guarantees on the latter. Rightly or wrongly, this was the scenario when Cameron walked into the room. The third plank is the democratic reforms which I refer to in my reply to Francis above.
On QMV. The UK has been very effective in tackling inappropriate aspects of Commission proposals in financial services. In the article I mention the AIFM directive which was unrecognisable by the time it was passed by the EP and Council. Similarly, the new rules for securitisation under the CRD II directive were fundamentally reformed, to the UK’s satisfaction, after strong work by the UK and UK MEPs. There has not been a single instance where the UK has been outvoted by QMV in Council on important pieces of financial services legislation and the fear is overdone. To insert these issues into a negotiation fixed on resolving the Euro crisis and which wouldn’t have affected the UK’s sovereignty was a deliberate wrecking strategy.
Furthermore, we shouldn’t forget that the crisis illustrated that 27 different systems of financial regulation is not compatible with an industry which is liberalised not just at a European level, but at a global level. Global rules and supervision should be our goal and the EU has tried to fulfil its commitments to financial reform made at the G20 (the inspiration of much of the EU’s agenda). Therefore, demanding that supervision must happen only at a national level (demand number 1) is simply not compatible with the regulatory reality on the ground, we simply can’t do everything at UK level. This was rightly rejected by other governments.
” Imagine if Germany demanded unanimity on environmental legislation to protect its polluting industries, Spain on fisheries or France on agriculture”
Of course the CAP is absolutely even handed when it comes to the interests of French farmers ……..
Simon, I agree that France is a major stumbling block to the reform of the CAP. However, the problem is that the only other Member State that consistently supports the UK in calling for fundamental CAP reform is Sweden. The CAP is also very much in the interest of farmers from Ireland, Spain, Poland and so on. Their governments also work to protect the system, not just the French.
Interesting to note that if Scotland becomes independent, they will be another country supporting the CAP.
Mark G, I agree. As the coalition partner, it is quite incredible that this happened on our watch. Questions need to be asked why there was no Lib Dem in the building putting the brakes on Cameron’s veto, what our Ministers knew and when, and why the veto was more or less endorsed in a press release on Friday morning before the aggressive counter-reaction over the weekend.
I can’t help feeling that there is one further point of psychology which affected events. For months, the Eurozone leaders have been pilloried as slow, ineffectual, behind the curve, unable to understand how markets work, and incapable of reaching an effective decision. Then Cameron came along and offered them the chance to make a very simple, brutal decision which they could all feel happy with. They took it. A UK negotiator with the slightest emotional intelligence should have seen that they were likely to take it.
David, yes I think you’re probably right. It is surprising how quickly the decision was taken since this decision did not even need to be taken at the summit or could have at least waited until the end of negotiations on Friday. However, I am of the opinion that the UK negotiators knew what they were doing and intended for this outcome, rather than lacking emotional intelligence.
Great stuff, Conan. By far the most penetrating analysis in Lib Dem Voice since last week’s “evenements”.
I take it you are confirming from your position of specialist knowledge what I (as a mere observer) have been setting out in several threads – that UK financial services were not under threat from this new eurozone deal and Cameron’s action was an attempt to impress his backbenchers by bouncing Merkozy into conceding a pre-emption of the separate financial serviuces negotiations. I do not think it was a simple wrecking mechanism – otherwise Clegg et al would not have endorsed it even to the degree they did.
Of course this will all be seen as a sideshow if the measures to save the eurozone fail. In this event watch for a rewriting of history to paint Cameron as the far-seeing statesman who saw that this deal was misguided and tried to save Europe from it – rather than being quite prepared to support it – Osborne was calling for it – if he succeeded in “selling” his vote.
By the way thank you for pointing out that a deal to put more harmony and discipline into the eurozone is a prerequisite to securing the “big bazooka” from the ECB – not an alternative to it.
“Cameron’s veto – an act of ruthless self-interest”
errr yes – he is a Tory, of course he would act with ruthless self-interest
Are we still thinking that Cameron is a cuddly nice person who wouldn’t chew us up for breakfast if he had the chance?
Dennis, yes exactly. There are (and will be) no provisions in the Eurozone deal would have affected the UK’s financial services industry. Indeed there was only a positive effect on the table for the UK’s industry through the shoring up of the Euro and stopping financial meltdown! Introducing these points into the context of these negotiations was not a response to the content but instead additional and unrelated demands. A demand for an opt-out on social and employment legislation would have been more understandable (if not condonable) since at least it was related to the treaty revision under discussion.
On whether it was a wrecking mechanism, perhaps it was misrepresented to Clegg and was to be seen as a basis of negotiation with the intention that the demands for unanimity could be eventually removed. Interesting to see the reaction of Lib Dem Chair of the EP’s Economic and Monetary Affairs Committee Sharon Bowles’ reaction – http://www.europarl.europa.eu/sides/getVod.do?mode=chapter&language=EN&vodDateId=20111213-09:12:31-298.
Unfortunately, as you say, Cameron will probably come out of this looking quite good. The deal is not looking secure with potential referanda, wobbling countries and no big bazooka. The cackhandedness of other European politicians such as Merkel could give him the opportunity to say he played his hand well even if for the wrong reasons and, ironically, even if he did contribute to the mess the Euro is now in.
[moderator – feel free to delete the previous post – an overly sloppy post i fear]
@ Conan – “I agree that Cameron’s veto is not the central reason why the Eurozone is in trouble. However, I was trying to illustrate that it did have an effect broader than just the UK’s relations with the EU in that it undermined one of the three necessary planks for solving the Eurozone crisis.”
It is barely even peripheral to the causes of the Eurozone crisis. While Cameron’s act may have made a solution procedurally more complex that has never been the Eurozone’s problem, which is achieving common consent from different polities that they may then be governed by people for whom they do not percieve a shared familial sentiment.
Do Finns consent to the joint issuance of debt knowing that their socially-responsible culture will have its bond rates damaged because they are tied to that of nations which barely accept the legitimacy of government taxation?
Do the Dutch consent to generations of fiscal transfers to the south of europe in order to make good the wealth deficit just as we do with the northern today, and on a scale that will dwarf the £10b/year West Germany gives to the East?
Do Germans consent to ordoliberalism being thrown overboard, which demands that institutions such as the ECB remain vehemently neutral in order that the ups-and-downs of liberal democracy do not upset society, and do so to ‘fund’ inflation?
Do the Irish consent to a level or supranational governance that effectively gifts the power of the purse-strings to the ECB, and in the words of Gladstone their very democracy itself, so that German MP’s can peruse the budget before the Dail?
The crucial feature of indirect democracy is the perception of representation, the collective trust in shared aims and expectations that allows the people to put their destiny in the hands of another, safe in the knowledge that even if ‘their’ man doesn’t get the job then the other guy will still be looking after their best interests.
The manner in which this trust is built is the knowledge that you and ‘he’ have a history of cooperation, and that your respective families likewise have a shared social and cultural history of cooperation, all of which allows you to trust that when adversity strikes ‘he’ will act in a predictable and acceptable way.
A nation-state is effectively a collective agreement that a people are a family, who have sufficient trust in each other to accept indirect governance from representatives of the prevailing will of a majority, it is also a collective agreement to work together for the benefit of the whole rather than the individual. In short it is a marriage which results in a transfer union.
The success or failure of the eurozone is not an outcome determined by some procedural roadblock thrown up by Cameron, no, it is a visceral and emotional argument to decide who YOU consent to act in YOUR name on the understanding that YOU will be bound by the consequences of THEIR actions.
You are a clever chap, beavering away at the bedrock of economic wonkery and no doubt with a bright future ahead of you, but do not lose sight of the fact that you are spared a pitchfork in the gut when you demand 22% of my earnings only because I have consented to give that money to you. Remove that consent and you have created the conditions for insurrection.
The eurozone is free to make those difficult decisions listed above, regardless of the participation of Britain in whatever treaty emerges, and if Germany (or anyone else) refuses to step aboard the good-ship federal-union with the excuse it is procedurally impossible, i’m afraid it is entirely because their people won’t consent for them to do so.
Procedure has never been allowed to stand in the way of ever-deeper-union.
Jeditbeeftrix, I’m not sure whether I can say this more clearly but you are right that Cameron’s veto was not the defining reason why the Euro may or may not collapse. The democratic accountability you refer to and the continuing catalogue of errors from Merkel etc are far more important reasons. However, Cameron’s veto has led the crisis into serious legal uncertainty as the whole process could be stopped in the ECJ, it could involve a treaty between the 26 and the 27 (would Cameron have a referendum on that?) and it undermines the roles of the ECJ, Commission and Parliament, if they will be able to play one at all. These are not minor procedural issues but huge uncertainties that question the entire credibility of the exercise and, as we have seen, the markets have a good nose for inadequate solutions. I’m not saying ‘procedure’ will inevitably stand in the way of an ever deepening Union but it could lead to more imperfect solutions in whatever results.
There is also the point that moving the system outside of the existing treaties means the only directly elected institution in the EU, the Parliament, will probably have a reduced role.
As I’m sure you would point out, the Parliament has not provided the strong link between the people and the European process. This is for a number of reasons which I won’t explore here and as I said in an earlier reply, I believe the democratic accountability of the EU must improve to allow each citizen to respond to the scenarios and grievances which you outline above. Each country will have its own process for ratifying the new treaty whether through its Parliament or a referendum and people will express their views and this could, indeed, stop the whole process in its tracks.
However, you pre-suppose the judgement that they will give when you’re better off to let them use their pitchforks themselves.