Opinion

Hugo Dixon

Hara-kiri, British style

By Hugo Dixon
December 12, 2011

The opinions expressed are his own.

The UK’s self-immolation beggars belief. The government’s clumsy attempt to extract concessions from euro zone countries in their time of need has set off a chain reaction which could undermine Britain’s interests and even drive it out of the European Union.

It’s not clear what David Cameron thought he was doing at the European summit in the early hours of Dec. 9 when he demanded vetoes on financial regulation in the EU. Was the prime minister asking for something he knew was unacceptable so that he could return to Britain and parade as a hero in front of the euroskeptics in his Conservative Party? Or did he just vastly overestimate his negotiating position, thinking that the euro zone countries were so desperate to save their single currency that he could bounce them into accepting the British demands by presenting them with a take-it-or-leave-it offer in the middle of the night? If it was the former, Cameron was cynically putting his personal interests above those of the nation; if the latter, he was just extraordinarily inept.

Cameron did little to win allies for his position, not even circulating his list of proposals in advance of the summit, according to Reuters. Even worse, he put Britain in the position of seemingly being prepared to blow up the single currency if he didn’t get his way. In fact, Cameron didn’t have the power to stop the 17 euro zone countries from agreeing to sign a new treaty committing themselves to fiscal discipline. They just sidestepped the existing EU treaty. What’s more, they got all nine of the other countries which are part of the EU but not the single currency to sign up too. So all Cameron achieved in the middle of the night was to irritate Britain’s partners massively and isolate the UK 26-1.

Where does London go from here? One approach would be for Cameron to carry out his next threat: to try to stop the euro zone countries from using the European Commission and the European Court of Justice to police their fiscal discipline on the grounds that these institutions belong to all 27 countries. It’s not clear whether this is a legally winnable position, but pushing it would certainly make Britain look petty and further antagonize other European countries.

Meanwhile, members of Cameron’s euroskeptic wing will find it hard to hide their desire to see the single currency wrecked — something that could further madden those whose livelihood depend on it.

Unnecessary battle

None of this was remotely necessary. The euro zone countries weren’t trying to impose fiscal discipline on Britain, only on themselves. In fact they weren’t trying to impose anything on the UK. True, France has often seemed like it wanted to undermine the City of London’s position as a financial center. But until now, it has had zero success because the UK has always managed to assemble enough allies to support its position. In future, though, that can no longer be guaranteed. France’s President Nicolas Sarkozy may find he has allies if he wants to push through regulations that disadvantage what he calls his “British friends.” The risk of an inner club acting as a caucus and imposing its wishes on the UK has increased significantly.

The danger extends beyond financial services. Britain has been the main campaigner for free markets within the EU in recent decades. Although it hasn’t achieved everything it wanted, there have been notable successes such as creation of the so-called single market. Germany which, in some ways, is closer to Britain than France in its economic thinking supported these initiatives. But Angela Merkel isn’t going to be so keen to do the UK favors after Cameron snubbed her. The same goes for Italy, whose new prime minister Mario Monti, was a natural ally for liberalization given his passionate advocacy of the single market.

The British PM, meanwhile, has been reduced to the pathetic position of saying that the Netherlands, a fine but rather small country, will protect its interests in the single market. But even the Dutch finance minister has said: “The situation for the UK is very serious…..If you don’t have a seat at the table, you don’t participate.”

The biggest worry is that a vicious cycle develops — in which the euro zone squeezes the UK off the top table because of its lack of cooperation, London behaves increasingly like a spoiled brat because it is frustrated by its lack of influence, and this further antagonizes the big continental powers. Life could ultimately become so uncomfortable that Britain leaves the EU.  It would then lose the automatic right of access to the world’s largest  market. Although the rest of Europe might still let British business and finance operate on its side of the English Channel, it would largely dictate the rules of engagement.

Such an outcome would be disastrous for the City, British industry and UK foreign policy. Why would the United States, China, the Middle East and India want to deal with London if it had no friends in Europe? It would also be harder to persuade foreign business to locate in the UK if it had only second-class access to the single market.

Not all lost

But it’s not too late to retrieve the situation. The business and financial community can and should put pressure on government to find some face-saving position that allows Britain to move on in harmony with the rest of Europe. Something along the following lines might work: the UK would reverse its opposition to the existing EU mechanisms being used to enforce fiscal discipline on the euro countries while also saying how much it wanted to support them in their time of need; the other countries would then say how what they were doing would in no way undermine the single market while also asserting that they had no intention of imposing any new taxes on the UK, including the so-called Tobin tax on financial transactions, unless London wanted them. The euro zone wouldn’t actually be giving anything away as the UK already has a veto on new taxes. But such a declaration would sound good.

Getting to such a position wouldn’t be easy given that Cameron would have to eat his words and France would have to be persuaded to let Britain back into the fold. But Sarkozy may no longer be France’s president in five months; and the UK government may not be totally impervious to argument.

One pressure point are the Liberal Democrats, the minority partners in the coalition. They think of themselves as pro-Europeans and are aghast at Britain’s far from splendid isolation. Their leader, Nick Clegg, who is also the deputy prime minister, foolishly backed Cameron’s negotiating strategy without thinking through how it was likely to play out. He has now performed a U-turn, saying he is “bitterly disappointed” at the outcome. That, of course, is not the same as leaving the coalition. The LibDems will be reluctant to go down that route because they are scared of being slaughtered if there is a new election. But the chances of a collapse of the government have definitely risen.

Another pressure point, paradoxically, may be Boris Johnson, the euroskeptic Mayor of London. Cameron may well have hardened his line on Europe because he didn’t want to be outflanked by Johnson, a hugely popular figure in the Conservative Party. But the summit’s outcome isn’t in the interest of the City and therefore isn’t in the interest of London. If bankers can bring this point home to Johnson, who is an old friend of mine and whom I informally advise from time to time, he may soften his line — allowing Cameron to take a more accommodating position too.

Salvaging the situation will be tricky. But Britain doesn’t have an interest in being at loggerheads with the rest of Europe or vice versa — especially when the region’s worst financial crisis in a lifetime is still raging.

PHOTO: Britain’s Prime Minister David Cameron (C) looks at Germany’s Chancellor Angela Merkel (L) at a European Union summit in Brussels December 9, 2011.  REUTERS/Yves Herman

Comments
64 comments so far | RSS Comments RSS

Time will tell if Hugo is really as ridiculous as he looks.

Posted by Maxwells | Report as abusive
 

>>Well what does the UK export except crap cars and scheming financiers?>>

Don’t forget Heinz Tomato Sauce . . .

Posted by PLT2 | Report as abusive
 

Hmm. A lot of words, but little sense.

Why should Britain, which is struggling with its own financial problems but still has complete control over its own currency and is thus trusted more in world markets, give anything to the Eurozone countries for free?

They are right to extract a political cost for the supposedly sober and staid industrial way of doing things that Germany, France, and Italy like to go on about.

Everyone knew, wink wink, that most of the Eurozone countries barely qualified to join the Euro, and a few like Greece (and arguably Italy) outright lied or misrepresented their positions. France has had a budget deficit since 1974, and thus is no master of household finances.

Germany, though strong financially, had other reasons for tying the rest of Continental Europe to itself.

And so, while weaker countries sapped financial strength from the industrial heart of Europe via transfers, they also engaged in financial behaviour that was and is still obviously absurd.

Retirement in your 50′s? Ridiculously generous social programs that are not paid for with anything remotely considered adequate profit-making economic activity (i.e. actual businesses that make stuff), or in the case of Italy and Greece – is anyone seeing a trend here – behaviour that is outright criminal by the citizens of those two countries in their efforts to avoid taxes and yet expect everything.

The Euro should and will fail, and expect nothing from Britain to prolong the agony.

Posted by Kadath | Report as abusive
 

Seems to me that the Thatcher/Reagan Conservatives won the Class War they waged on the Working/MiddleClass.Starting with the Bush jr. Neo-Cons their next goal is to commit National Hara-kiri and imo they will use the resulting state of Financial Chaos and National Bankruptcy ,as a reason to fold Social Security Insurance,Unemployment Insurance,Medicare and other programs paid by the Commons via Payroll deductions.

Posted by 19javaman40 | Report as abusive
 

Looks like the UK’s PM is as doddering and old slave to corporatism as the US’s neo-conservative wing of the GOP.
God save us all.

Posted by datlgirl | Report as abusive
 

Hugo, we know you are still, many years later, impressed by your wonderful education, your glorious credentials, and impeccable ability to instruct your fellow Britons in how to understand government economic policy, and how to correctly take our place in your slightly marxist, left leaning, vision of HugoTopia, but we don’t buy it.

At least David Cameron is starting to position the UK in the right direction, and eventually while, admittedly getting a lot of flack from leftists, who appear to despise their own country, many of us wish him success in all his efforts to right the ship of state. Personally, I thought of selling my Greek and Portuguese bond instruments to set you up in sunny Greece, where you would thrive in the arms of an all encompassing EU form of nirvana, but when I last checked, the value of these EU assets was zero, much like the value of your tabloid type comments.

Posted by Waffenburg | Report as abusive
 

The common sense theory is: If something doesn’t work you should throw it out and start over. What happened to the theory that you should “cut your losses” and not “throw good money after bad”? Haven’t those criminal banksters sucked enough of your blood?

Posted by botsallover | Report as abusive
 

Cameron appears to be just extraordinarily inept. It is no wonder Britain is still so unpopular in the EU. I do not believe he will come off as anything other than an irratant.

Posted by RobtAlan | Report as abusive
 

Hugo doesn’t get it. Thank goodness for Cameron. The first bit of positive news for decades. Hugo belongs to a peculiar group of people who think Britain should be absorbed into Europe. Our politicians should be answerable to us, not Europe.

Posted by brainmanagement | Report as abusive
 

Heath took us in Cameron MUST take us out costs too much in cash jobs State pensions loss of company identity best food of ours goes East We gain nothing but European troubles

If David thinks we will be voting for him next round he is as dumb as a box of rocks.

What a complete Whackadoodle!

Posted by nrssutton | Report as abusive
 

Amazing that there are still Brits (I assume Huge really is British) that look upon the EU as a “good thing”. About time Mr Cameron or anyone else for that matter, said “enough”.

This was the best news I had heard associated with the EU for quite sometime.

Posted by SymonTheDymond | Report as abusive
 

I think this article is too parochial.

The response to US assertions of global jurisdiction has been the formation of national cooperatives in South America, Africa and Asia. Here in Europe we have the EU. This is the trend of history but it goes unmentioned.

There can be no future for UK on its own. Either we become Europeans or we apply to join NAFTA. Reinvigorating the Commonwealth is a non-starter now the former dominions have established their own foreign policies. I cannot see a third way, can you?

Posted by RBHoughton | Report as abusive
 

I’m so sick of hearing about debt.

First, is it British or Britons? I imagine the second is likely slightly insulting.

Secondly, first language English speaking nations should worry about ourselves and let the others live in the squalor they caused.

Posted by Williaminmd | Report as abusive
 

Bully, for Cameron!

Posted by OlleoBuggii7 | Report as abusive
 

Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/