Western Counties Liberal Democrats

Report from Sir Graham Watson MEP on the December 2011 European Council

The European Council meeting (heads of state and government summit) of 8-9 December 2011 ended in agreement by 23 member states to press ahead with a new treaty to forge a closer economic and fiscal union. Two other member states said they would join subject to ratification by their parliaments, and a third is now in this category, bringing to 26 member states the number which intend to proceed. Their intention is to agree the new treaty by March 2012. The UK said it would not join them.

The background to the desire for a new treaty is a shared view that in order to guarantee monetary stability and to prevent attacks on the euro or other currencies, common budgetary planning and greater tax harmonisation are necessary. This economic union would complement the monetary union in which 17 countries share a currency which the nine others plan join in future. These are also the conditions under which the countries with budget surpluses (principally Germany) will agree to continue assisting others.

However, because the UK vetoed it, the new treaty cannot be an EU Treaty. It will therefore be agreed in a framework different from that of the EU. This implies that although the EU will remain in place, much future policy making will be within the new treaty framework, without UK participation.

Aware of the difficulty Cameron was in with Conservative backbench sentiment, Nick Clegg worked hard over a six week period to try to prevent such an outcome. He met or spoke to the prime minister every day over the last three weeks to convince him of the danger and to help him devise a strategy to manage it. He also spoke to many other EU leaders. What he had no control over was how the PM would play his cards in the meeting.

By most accounts, Cameron got off to a bad start. Not having been present at the European People's Party pre-summit meeting in Marseilles (since his first act as party leader was to withdraw the Tories from the EPP), Cameron had little sense of the mood within Europe's majority. At Thursday night's supper he spoke strongly against regulation of financial services (particularly the hedge funds which finance the Tory party), which cost him sympathy among leaders who feel such regulation to be necessary. When offered by the chairman, later, a choice between agreement among 17 on closer union on the basis of Protocol 12 (which requires no treaty change and therefore remains within the existing treaty framework) and a new intergovernmental treaty, Cameron said it made no difference to him. Finally, just before 4am (when he could reasonably have asked for a postponement of business until later in the morning) he presented a list of demands to move the basis of decision making on financial services legislation within the single market from qualified majority voting to unanimity 'to protect the city of London'. He had clearly decided to go all in and, unsurprisingly, his bluff was called. At the press conference to explain his stance he was visibly shaken.

What can be said of Cameron's list of demands to protect the City? As with previous UK negotiating tactics they consisted mainly of setting up Aunt Sallies only to claim victory at home when he knocked them down. Any EU tax measure requires unanimous agreement, so a financial transaction tax could not be imposed without UK agreement. In the twenty years of the single market the UK has never been outvoted on any major piece of single market legislation, so there is no real reason to fear excessive new regulatory burdens. Moreover, the EU works on the tacit understanding that if a country has justified fears about a major national interest a compromise will be found. (The Working Time Directive, for example, sat for over 15 years in the Council's 'In' tray.) The 'safeguards' he insisted on are in practice already there.

The irony of the outcome is that the City of London is probably now more vulnerable than before. The UK will wish to adopt some of the legislation which the 26 adopt (in order to remain competitive and to continue to trade freely) but will have no say over it. International investors may switch investment to the continent for legal certainty and even financial institutions may move to Frankfurt, the seat of the European Central Bank. As one of my colleagues remarked, the City may believe Britain can be like Switzerland but without the snow; in fact we will end up like Norway but without the oil.

Does all this spell doom for the UK? No, not necessarily. The Euro is not yet out of the woods, so sterling still has some appeal. But the most valuable aspect of EU membership other than free trade is solidarity. Having chosen not to go forward with the others, Britain no longer enjoys this.

Liberal Democrats are right to be angry. Cameron has done something which even Mrs Thatcher avoided, namely to let the others go ahead without Britain. His actions were determined by the dispositions of the Conservative Party, not the interests of Britain. Had he accepted a Protocol 12 arrangement he would have prevented the relegation of Britain to an outer wing. His statement to the House of Commons this afternoon, while avoiding hubris, contained half truths and dubious assumptions.

Should it be an issue on which to quit the coalition? I think not. Of all the chapters of the coalition agreement the EU chapter is the least well thought through and contains no provisions for such a development. Cameron probably calculated that if insisting on his demands led to a coalition rupture he could, if necessary, win a general election.

Moreover, however unlikely it looks, there is nothing at present to prevent the UK changing its mind and opting back in (though almost certainly after the others have set the rules, of course. To me it looks like the Conference of Messina all over again.) What we must do is persuade the remaining pro-European Tories to join the Liberal Democrats and convince British business that the country is no longer safe in Conservative hands. They may now need little convincing.

ENDS

12.12.2011