Bagehot’s notebook | Britain and the EU

The moment, behind closed doors, that David Cameron lost his EU argument last night

What Britain was asking for

By Bagehot

CLAIMS and counter-claims are flying as British officials and European diplomats squabble over who, exactly, was being unreasonable last night when David Cameron refused to sign up to a new European Union treaty with strict new curbs on taxation and spending within the euro zone.

There are reliable signs of heavy Downing Street briefing over at the Daily Telegraph, where the well-connected Ben Brogan is reporting that it was all the fault of the French, who crammed the text on the summit table so full of impossible demands that the British had no choice but to walk away. He writes:

The events of the past 12 hours have exposed a truth that many chose to ignore, namely that in its relentless pursuit of its national interest, France's strategic objective has been to drive the UK to the margins – if not out of the EU – and to destroy the City. The French narrative of the crisis is that it is all an Anglo-Saxon creation, and we must be punished for it. The failings of the euro so obvious to us are not recognised by the French. The British view is that packing the treaty proposals full of changes that Britain could never conceivably accept was a ploy to force us into a veto, and so into the departure lounge. Or here's another way of putting from inside the machine: "The French are out to screw us," one source tells me. "Despite all the jollity, the fact is that Sarko doesn't gives a s*** about us. It's all bull***. They have their view that the Anglo-Saxon model is a disaster and was responsible for the crisis."

But was the problem really concrete proposals in the treaty that was on the table last night? As it happens, there are good reasons to worry that the whole plan being cooked up to save the euro may not work, and may cause some agonising clashes between monetary stability and democracy.

For instance, to take a brief tangent, it occurs to me that if the new euro-plus fiscal union adopts its planned restrictions on taxation and spending, you could easily imagine a future general election in which one party's manifesto, full of Keynesian stimulus policies or tax-cuts, is run through a think-tank's calculators and discovered to be euro-incompatible, while a rival party's plan fits the criteria handed down from Brussels. At which point, it will surely be argued, it is pointless to vote for the first party, because the fiscal union will stop them from doing what they promise. That feels politically very dodgy to me.

But back to the summit of last night and today. Was the problem for Mr Cameron really that the French had loaded the table with proposals he could not accept?

The reporting from Brussels is rather different: that Britain was worried about the threat of future European legislation, especially in the field of finance, and wanted "safeguards".

What does that actually mean? The Telegraph's Brussels correspondent Bruno Waterfield was first with the scoop of the actual draft proposal presented by Britain and rejected by the others.

The Financial Times had a good, detailed explanation of the underlying British concerns, explaining:

Mr Cameron insisted that any agreement to tighten fiscal discipline in the 17-member eurozone should not distort the single market covering all 27 member states. He also wants a separate protocol to protect the City of London from excessive EU regulation, including an agreement to let Britain enforce bank capital requirements that are higher than the proposed European maximum.

Other demands include an agreement that the new European Banking Authority should remain in London and protection from EU regulation of London-based US financial institutions that do not trade with the rest of Europe.

Mr Cameron also wants a written guarantee – making explicit what is already the case – that unanimity should apply to any proposed “user charges” for financial groups, including any variant of the controversial European financial transactions tax.

All useful. But being a bear of limited brain, I found myself still wondering what—taking a step back—really happened last night, in the simplest political terms.

In the nick of time, a well-placed source (a senior official who is broadly neutral towards the British government in this fight) has given me his reading of what happened, and where it all turned sour for Mr Cameron. It rings true to me.

Mr Cameron had two problems, as my source sees it. The first was the nature of his demand, and how it was made. In essence, the British did not ask for an "emergency brake" clause or opt-out for financial regulation.

What they asked for was a protocol imposing decision-making by unanimity on a number of areas of regulation currently decided by majority voting. (If you want to be really technical, the choice is voting by unanimity or the special Qualified Majority Voting (QMV) used in the EU, which is a sort of super-majority system taking into account a certain number of countries and also their populations).

As my source puts it, this amounted to a big winding-back of the clock for many EU leaders, setting a "horrendous precedent" that could unravel the single market. As they see it, common rules for the common market have been adopted (with few exceptions, such as tax) by QMV ever since the Single European Act approved by Margaret Thatcher in 1986.

The much-discussed Financial Transactions Tax issue already requires unanimity and therefore could never be imposed on the City of London without Britain's agreement. What is more, as was pointed out in Brussels with some vehemence, when it comes to financial services there have hardly ever been any cases of Britain being outvoted in the adoption of such legislation.

In simple terms, that means that Britain's request to move to unanimity was taken as a huge ask that had nothing to do with the subject at hand (saving the euro) or was a sign of bad faith (because it is driven by mistrust regarding future legislation). In my source's view, Britain also tabled its request very late in the day, simply sending a whole draft protocol to the European Council legal service the day before the meeting without talking the ideas through with key allies and national capitals.

Then, says my source, came the second crunch moment for Mr Cameron. Once the 27 EU leaders gathered in the summit room, a sense rapidly emerged that a lot of countries did not share Germany's enthusiasm for full-blown treaty change, a process which is slow and fraught with risks (the markets might not wait that long, Ireland might have to hold a referendum, Britain would have to get a vote through the House of Commons and so on).

By a certain point on Thursday night, I am told, a majority of countries were growing interested in a quick and dirty legal fix, suggested by the president of the European Council, Herman Van Rompuy. The fix was dreamed up by lawyers working for Mr Van Rompuy. They said that a legal device, known as "Protocol 12", would allow the 27 leaders of the EU to agree most of the new rules and mechanisms for fiscal union in the euro zone by a simple, unanimous decision among themselves.

Suddenly, Germany looked isolated. Mr Van Rompuy, a former Belgian prime minister elected by EU leaders to chair their summits, decided to see if he could sweeten the deal for the wavering EU leaders, and asked Mr Cameron if he would consider dropping some of his requests. This made sense to some leaders in the room. Mr Cameron's demands were already more than many of his colleagues would tolerate, and Britain had already said publicly it would tailor its demands to the scale of the treaty change on the table. Mr Cameron said he would not lower his ambitions, and that his demands would be the same in the event of Protocol 12 being used, or a full-blown EU treaty.

A hostile view of this is that Mr Cameron overplayed his hand. In this version of events, the British prime minister thought the mood of the room was running towards Protocol 12, and because Protocol 12 is decided by unanimity, he thought he had the whip hand.

Instead, my source tells me, the room turned on Mr Cameron. This, I am told, "was the point at which the Protocol 12 route, which requires unanimity, was effectively closed down and one country after another accepted a new treaty at 17+."

Did Mr Cameron miscalculate? Did he want to end up with a treaty being crafted at almost 26, with Britain on the outside? My source is certain that was not Mr Cameron's goal, and my source is not alone in this thinking.

It is now almost inevitable that separate structures be set up, with Britain on the outside, it seems. Talk in London of preventing the "Eurozone-plus" from using the Court of Justice is also a mistake, I am told. Article 273 of the treaty allows just this.

You can choose to believe this account or not. It comes from a single source, who is well-placed but clearly viewing this from a particular perspective.

Time will tell. But what a mess.

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