Two-speed Europe?

9 December 2011

Mr Cameron, the British prime minister, has indeed vetoed the plans to change the EU treaty during the summit in Brussels. Seen from the viewpoint of the British domestic politics, it was probably the only course of action he could take, given the commotions from the backbenchers. He will claim it a victory: a strange kind of victory in that it made a deal for the eurozone countries easier, because such an accord did not have to involve Britain, and at the cost of goodwill and influence in Europe. Furthermore, the veto stopped the treaty from being amended, but it did not achieve anything to safeguard British interests, that Mr Cameron had sought to do. ‘British interests’ centred on the need, as Mr Cameron saw, to protect the City from EU financial regulations, such as the mooted transactions tax, by retaining a veto in the Council, instead of the system based on qualified majority voting (QMV). Mr Cameron probably had hoped that a prospect of veto would make Germany accept the British position, as Mrs Merkel was keen on a change in the EU treaty, but the Franco-German agreement was much stronger and united than Britain assumed. If other countries can work together, and hammer out an agreement, Britain may no longer have a blocking minority to prevent regulations. If that were to happen, it was a very heavy to price to pay.

It can be argued that Mr Cameron’s veto was the result of a collective no from other European countries against Britain: they were not going to accede to British interests, when their primary aim was to save the single currency. He had to veto because the domestic politics demanded such, and crucially he could do so, because most European countries were happy to come to an agreement without Britain. If Britain had support among other EU member states, especially those in the eurozone, Mr Cameron would have been able to get a better deal, since the collapse of this summit would probably have led to the disintegration of the eurozone. It was a veto exercised from a weak, cornered position because of domestic politics, not a veto from a strong position spoilt with choice, therefore perhaps it was not a triumph but a defeat. It may be argued that both sides got what they wanted in the end: Mr Cameron, a ‘victory’ in Europe; for the eurozone countries, a much deeper integration than it would have been possible with Britain on board, albeit not enshrined by a change to the EU treaty.

Now, the 17 eurozone countries plus 6 other countries, including non-eurozone and traditionally euro-sceptic countries such as Denmark and Poland, will agree on an accord that imposes limits to government debts and deficits. 23 member states leaves four that will stay out of or are undecided about the agreement: the UK, Hungary, Sweden and the Czech Republic. While the Czechs have been running a deficit (-4.8% in 2010), their debt to GDP ratio is a healthy 37.6% at the end of 2010, and as for the Swedes, they have a budget surplus (0.2% in 2010) and a debt to GDP ratio of under 40% (39.7% to be exact in 2010), thus in a much better shape than most European countries. These two countries have been euro-sceptic, as far as the single currency project is concerned, and they tend to resent interference from Brussels. Given the figures, demonstrating that they can manage their own households, it’s perhaps not surprising that they haven’t readily signed up. The figures for the UK and Hungary are, on the other hand, less encouraging.

Whether this agreement will, on its own, save the euro is a matter for debate, and whether all the current members can stay within is highly doubtful (especially, but perhaps not limited to, Greece), but this probably makes it much easier for Chancellor Merkel to sell to the German electorate further bailouts or underwriting others’ debts, if such actions are deemed necessary. Some of the uncertainties in the markets resulted from the inability of Mrs Merkel, thus the economic might of Germany, to be seen as an unwavering supporter of the euro project. Part of the problem was that most Germans, who pride themselves on being prudent, hate to fund others’ profligacy. Part of the reluctance was that she, as with many Germans, did not want to be seen as running or dictating to Europe. Incidentally, this is the opposite of the French, who want to be seen as calling the shots, even if they actually do not. The Franco-German axis in Europe works out well for that reason: we all know which partner actually brings home the bacon, despite the other claiming the credit.

There is now a two-speed Europe: the first consisting of the current 17 current eurozone countries, and those who aspire to or at least leave the option open to join the euro; the second consisting of those who wish to remain outside. It wouldn’t be a two-speed Europe as such, if the second group were to consist of the UK only.


It appears that heads of governments of Hungary, the Czech Republic and Sweden (as well as the non-eurozone members of the EU: Bulgaria, Denmark, Latvia, Lithuania, Poland and Romania) wished to consult their parliaments before making any commitments to this accord, and it was only the UK that had dismissed the accord out of hand. If the 26 countries were to agree, just leaving Britain outside, then it will lead to the question of the UK membership of the EU. Perhaps this was what Mr Cameron had intended all along: to start a process that will end up in the UK leaving the EU.