Reading Aaron Ellis’s thoughts on the unexpected “no” from Cameron on Friday – as well as the mournings and musings of various others – has prompted me to pause for thought. HMG has always sought to have British commissioners holding the economic portfolio in Brussels, in order that the economic regulation that emerges has a flavour that is acceptable to the British palate. It is perhaps no coincidence that financial regulation became indigestible once labour abandoned the principle of occupying the economic portfolio at all costs – to get Baroness Ashton into the new foreign policy portfolio – thereby allowing France to install Barnier into our old redoubt. This perhaps explains why Britain is so nervous about the coming tide of financial regulation, when we have not previously been overruled on such matters via QMV, but has Cameron played a blinder or a poor hand badly?

Rather depends on how deluded you are, for there was very little choice available to Cameron.

As Aaron pointed out there is something surreal about the most common argument that Cameron chose badly:

“Given the third truth, David Cameron chose the least bad option, as it seems the only way this country can gain “influence” in Europe is if it gave up pursuing its own interests and devoted all our energies to pursuing those of France and Germany (which is what The Economist‘s Bagehot and Charlemange seem to be recommending).”

The common theme being derision at the notion that a veto was wielded, because nothing was actually gained that wouldn’t have happened anyway, only now we have isolated Britain from europe and will no longer have a place in the engine room alongside Merkozy.

This assumption is always expressed as exasperation at the influence we have thrown away, but is always done in couched terms and veiled allusions. A good example is found on Libdemvoice:

“For much of the noughties, the Germans were begging the Brits to become a part of a triumvirate, who would be the real movers and shakers in an ever expanding Union. But instead, the Germans are left to share the steering role just with France.”

What are the consequences of this fantasy they hold to; are they willing to turn to the British public and admit the price, the loss of sovereignty, involved in joining France and Germany at the helm of europe?

I ask them to be honest about the implications of these pious mutterings; are they willing to state plainly to the electorate the consequence of being in the first tier, i.e. being in the euro and a driving force in further federalism?

This plainly cannot happen when the electorate – by a large majority – wants a referendum on europe, and would vote to leave if given one.

What really happened?

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.

Was there really a threat?

Judge for yourself:

“Mr President, To overcome the current crisis, all necessary measures to stabilize the euro area as a whole will have to be taken. Those steps need to be taken now without further delay. We consider this as a matter of necessity, credibility and confidence in the future of Economic and Monetary Union. This conviction is the driving-force behind our proposal. * Financial regulation; * Labor markets; * Convergence and harmonization of corporate tax base and creation of a financial transaction tax;”

There are bullet points that explicitly mention the eurozone………….. and then there are bullet points that remain ambiguous, and as the Economist’s Bagehot has put it best:

“Successive British governments have believed that on balance membership of the EU is in their interests (or is worse than non-membership). But because we are different (and because we take a common law as opposed to Napoleonic view of regulation, favouring a world in which everything is allowed unless it is expressly prohibited), we seek at every turn to pin down every detail of new rules or schemes being proposed, in case some of it turns out to be harmful. What was on the table on Thursday night was not clear in all its details when it came to the implications for the single market, so it was genuinely a tricky document for Mr Cameron.”

But nothing was actually achieved!

Some people have pointed out that nothing has really changed because this financial regulation is still subject to codecision under QMV at 27, and if 26 of the 27 states have already decided, then it’s a done deal. That, however, would have been the case regardless of the outcome, as Sarkozy made clear no compromise was available on the subject of financial regulation. It is worth noting that unpalatable financial regulation that emerges from the new euro-group – lacking the legitimacy bestowed by the web of EU treaty law – will prove far easier for London to resist.

So what was the point?

The point was that Cameron had no choice, he couldn’t come back to parliament with nothing because his government would collapse if he failed to offer the referendum so many want, and he can’t the referendum either because it would fail, thus causing further chaos in the eurozone crisis. More than half his backbenchers refused to back the Gov’t the last time the EU came up, and this time Ministers were briefing against him, it would be a bloodbath.

Well, what will be the fall-out?

That is three-fold:

To follow Peter Oborne’s argument, the veto was used not because Cameron demanded repatriation of powers, but because Sarkozy would not spare the City of London from the tide of regulation that approaches. It was not the leaders of european nations that rejected these safeguards, they never got a look-in because Sarkozy rejected them outright. Remember, this summit solved nothing as there was no direct support for sovereigns, no debt mutualisation and regime for fiscal transfers, and thus the farce will stumble on for years to come. So, when the next ‘permanent’ solution to the euro-crisis needs haggling the smaller countries will be watching France not Britain. While some of the more high-strung Lib-Dem’s are squeaking shrilly at Clegg’s betrayal of their europhile dreams, what really happened was that Clegg was given a mechanism with which he can draw his party to a more pragmatic stance on the EU. There were no nasty eurosceptic demands for repatriation of powers; “all we asked for were protections for the City of London and they couldn’t even agree to that! We will continue to be pro-european, working to maintain the single market and advocate reform to encourage competitiveness, but we will do so in the British interest.” This stance will both help the Lib-Dem’s and highlight the irrelevance of the opposition. A whole slew of protracted and nasty legal cases as Britain and France fight over whether EU institutions can be used to bind and enforce the evolution of the mechanism for fiscal oversight in the eurozone. The eurozone partners still want their eventual solution to be bound in EU treaty, it will resolve a great deal of legal awkwardness, and prevent the need to invent parallel institutions. France will continue to push for financial regulation of the City of London. I see a compromise in there somewhere, one that will both push London further away from the core and cement that core closer around France. Both parties will get what they want, and Germany will midwife the process willingly for it wants neither Britain out nor a French-tail wagging the eurogroup-dog..

So we really do have a two speed EU now?

Yes, we really do. The idea that, for all the bluster, we’ll rejoin the fold with tail ‘twixt legs just as we always have, is more than a little 20th century. In 1986 europe represented 35% of world GDP, today it is around 25%, and by 2036 europe will be little more than 15% of world GDP, europe is now a strategic backwater which no longer compels our attention. While there has been a two-speed europe ever since the Euro sprang into being, as long as we all pretended it was not so it remained impossible to articulate an alternative. Well, Friday ended the pretence.

That “no” may well result in an a-la-carte EU where countries outside the core choose the areas where they wish to integrate, without compromising the ambitions of the rest. A Sweden that is no longer obliged to become a eurozone member, or a Denmark that can leave Schengen? If Cameron plays his cards right it could well happen, for it is only when times are hard and radical policy needed that it becomes impossible for a multi-polity union to govern in a manner that is both representative and accountable. Well, times are hard right now, and some of those polities are shocked to discover that their governance appears to lack legitimacy.

Bottom line.

You can’t be a little bit pregnant, and after some prevarication we have decided we’re not. Hopefully others will follow.

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Update – 2011.12.10 – My congratulations to the Guardian for providing by far the best behind-the-scenes coverage of the EU summit on Thursday night.

Update – 2011.12.10 – As Charles Crawford points out, there is more to influence with europe than mere treaties, there is also the matter of our 57 billion Euros (a year).

Update – 2011.12.12 – Turns out that just over 80% of those who expressed an opinion, one way or the other, approved of Cameron’s action.