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Nine Paradoxes of the Euro Veto Crisis

Posted: 19/12/11 00:00

One week later, as we enter the hangover phase of the euro veto crisis, clouds of paradox hang thick in the air. The last week has thrown up contortions, contradictions and ambiguities which have left heads spinning on all sides. Here are nine paradoxes to emerge from the chain of events:

Both a 'storm in a tea-cup' and the end of an era: The deal struck by the 'Europe of 26' is already fraying at the edges and seems set to unravel before it sees the light of day. Other non eurozone members are grumbling and Francois Hollande has said he would renegotiate. So from a legal perspective Mr Cameron's 'no' may have little consequence. He could have bitten his tongue. However psychologically something snapped, in the minds of the Germans and French, as well as with Cameron himself. By walking away from the table the prime minister has created a rupture in Britain's European relations which will endure even as the detail becomes a fast fading memory.

By walking away, the UK won on how the EU should do business: The deal the UK forced on its partners, outside the apparatus of the EU institutions, confirms that the UK's vision of how Europe should do business has prevailed even without its participation. It is the death-knell for 'federalists' who back the authority of the independent European institutions over member states and proves that Britain and France have won their long battle for an 'intergovernmental' Europe. In the long-run this will put a break on the pace of political integration even if this looks implausible after the weekend agreement.

A bid to safeguard the City ended up undermining it: A veto ostensibly designed to protect the City's interests has ended up undermining them. With Britain on the sidelines other member states are now more likely to make unhelpful decisions on financial regulation which the UK cannot veto. It is curious that Mr Cameron took a position with such a significant down-side for Britain. Of course, it was a compromise package which Cameron hoped would be acceptable to EU leaders, Liberal Democrat ministers and his own backbenchers. The risk in his negotiating position became apparent when Mr Cameron concluded that it was not possible to reconcile the competing demands. He was placed in a position where he had to prioritise his base over the national interest.

Cameron wanted to undo Mrs Thatcher's work: The prime minister wanted to remove majority voting from key elements of single market decision making affecting financial regulation. It was Mrs Thatcher and her Conservative European Commissioner, Lord Cockfield, who presided over the introduction of majority voting to prevent anti free-market forces blocking progress towards the single market. Ever since, the British government has taken pride in working the Brussels machinery to achieve an open and competitive European economy. The centre of gravity has gradually shifted towards the right as a result. Cameron's demands revealed his own lack of confidence in the Conservatives' ability to work Europe to their advantage.

The UK said no when little was at stake for us. Eurozone members said yes to a deal which risks their future: Wielding the veto was bad for Britain's national interest while by agreeing the UK would have lost nothing. By contrast for all those vulnerable eurozone members who accepted the accord, the outcome is very risky. The new fiscal rules do not address the problems that brought on the Euro crisis, certainly in the case of Spain and Italy which had healthy public finances before the crash. But if applied strictly, the new regime could plunge Southern Europe into enduring economic turmoil undermining the eurozone further in the medium term. The fiscal provisions are simply there to persuade Germans to intervene. So observers on the left face the difficult task of opposing David Cameron for walking away and undermining UK influence, while also criticising a deal which would rule out the sort of fiscal stimulus which the US and UK adopted in 2009. For now there is nowhere for pro-European Keynesians to turn. This explains Ed Milibands discomfort on the question of what he would have done. In truth he would have agreed to let the eurozone do what it wanted as long as the UK was not involved, while believing the course of action extremely unwise.

The version of Britain in Europe most people want is becoming less achievable: Since Harold Wilson's day Britain has sought a middle-way on Europe, between isolationism and full-speed integration. Every political leader, including David Cameron, has followed this course in one way or another. The week's events make the UK's half-way position highly unstable. The UK may now face the remorseless pressure of disaffiliation, reversing decades spent wrestling with forces pulling us inwards. The domestic dynamics of the Conservative Party and the right-wing press could combine with the hostility and exasperation of the UK's European partners to bring about a referendum on withdrawal within a very few years. The UK may end as a small island economy at the mercy of global forces and (if we want access to the European market) of EU rules we have no power to shape. Or perhaps if a referendum says 'no' to exit or if the economy takes a nose-dive, Britain will be forced back into the European fold, on terms dictated to us. Whatever happens, the euro-realist status quo most people actually want is becomes more and more unlikely.

Anti-European English nationalism brings Scottish independence closer: The more anti-European the Conservatives become, the more Alex Salmond can exploit it. A UK referendum on Europe would offer the SNP a perfect platform for an independence vote, predicated on Scotland's EU membership. For some English nationalists in Conservative ranks this may be no paradox, as they are increasingly attracted to a right-leaning, free-market England free from all encumbrances. But it represents a historic parting from the Conservative and Unionist tradition of at least two hundred years.

While all this happens Britain is becoming a more European country and the Atlantic is widening: US politics has lurched to the right over the last decade but the British public remains wedded to a UK version of European social democracy. Only one in 10 voters want a smaller state, the NHS is our best loved institution, a substantial majority want to keep current employment rights and want the gap between rich and poor to close, and climate change-denial remains a minority sport. The public shares the Tory's instinctive euro-scepticism, but on social and economic issues the Conservatives are drifting into the mid-Atlantic leaving mainstream opinion behind.

And the EU is proving its point on the global stage: David Cameron said 'no' just as the value of Britain in Europe was on show in Durban. The climate change deal was far from perfect, but it still demonstrated beyond doubt the essential role of common European politics. In an Asian century the issues Britain cares about - like climate protection, but also political freedom and open economies - will only be advanced through strong, united diplomacy from the EU. Britain cannot go it alone in the 21st centrury.

 

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