On 9 December, most members of the European Union reached an agreement designed to secure the long-term future of the single currency. All 17 members of the Eurozone agreed to the new deal, as did six non-Eurozone EU member states. There will now be binding limits on spending and borrowing, forcing the harmonisation of fiscal policy. Budget deficits of more than 3% of GDP will trigger punitive sanctions.
However, British prime minister David Cameroon refused to accept some of the planned financial services’ regulations. The UK delegation therefore used its veto to prevent the introduction of a full-blown EU treaty, thereby guaranteeing its opt out. As a result, the agreement will be implemented on an inter-governmental basis. On the positive side, this should enable the settlement to be implemented much more quickly, without the need for national consultation in most states.
The new agreement is designed to prevent a repeat of the Eurozone’s current debt problems. Yet in effect, it is a partial closure of the stable door after the horse has bolted. It does little to tackle the current difficulties or to address the lack of economic growth in Europe. The principal aim of the deal is to restore confidence in the single currency. Yet the markets were flat on the morning after the agreement was announced.
Moreover, forcing struggling European economies, such as Greece, Italy and Portugal, to cut social spending for many years to come is likely to provoke social unrest and generate antagonism towards Brussels. Whatever money is made available by the EU and IMF to bolster struggling states is unlikely to be anywhere near enough to calm tensions. Pressure for withdrawal from the Eurozone and possibly also the EU itself may grow in some countries.
Antagonism towards London from other European governments is now greater than at any time since Margaret Thatcher ruled the roost in Westminster. Cameroon’s position, however, is easily understood on both political and economic grounds. His Conservative-Liberal Democratic government is already reining in spending more vigorously than most other EU member states but he was never going to hand over fiscal decision-making to Brussels. He is also keen to protect London’s status as a global financial services centre. Nevertheless, his position does weaken the cohesion of the EU.
Most commentators agree that a two-speed Europe – the bête noir of French President Nicolas Sarkozy – has finally been created. If two speeds are permissible, why not three or even 27, with all member states able to pick and choose the parts of EU agreements, legislation and regulation that they approve of and rejecting the rest? Cameroon himself, perhaps mischievously, is already talking of a multi-speed Europe. Candidate states, such as Croatia, may now feel themselves to be in a stronger negotiating position than in the past, should they still wish to join the EU. The new agreement may raise more questions than it answers.