x Abu Dhabi, UAEWednesday 26 July 2017

Euro fury as Britain blocks new EU treaty

Britain's prime minister enrages European Union partners by forcing the collapse of a plan for a new treaty to impose tough budgetary rules on euro zone nations.

MARSEILLE, FRANCE // Europe has been plunged into diplomatic crisis after Britain was left isolated in the battle to tackle ruinous sovereign debt and restore confidence in the single currency.

The British prime minister, David Cameron, enraged European Union partners by forcing the collapse of a Franco-German plan for a new treaty to impose tough budgetary rules on euro zone nations.

Mr Cameron, fearing a surrender of powers to Brussels that would cause revolt in his own Conservative party and threaten his coalition government, effectively applied a veto by holding out for assurances to protect British interests. EU treaty changes require unanimous support.

After 11 hours of tense, reportedly ill-tempered discussions at a EU summit in the Belgian capital, the French president, Nicolas Sarkozy, condemned Mr Cameron's position as "unacceptable". The German chancellor, Angela Merkel, said it was as if he had not really been present at the negotiating table.

Britain's isolation grew yesterday as it became clear that most, if not all, other EU nations were likely to go along with the so-called "Merkozy" plan in a non-treaty accord.

Initially three other countries - Hungary, Sweden and the Czech Republic - appeared reluctant to endorse it. But the European Council president, Herman Van Rompuy, said 26 EU leaders were now open to "joining this effort" in recognition of the "common good of the euro".

This leaves Britain, which has always resisted abandoning sterling, in a minority of one.

After early market unease, as comment focused on the collapse of the proposal for a new treaty, signs of wider support for moving ahead without one - and without the UK - led to modest gains on the London, Frankfurt and Paris stock exchanges.

However, doubts persisted about the euro zone's ability to steer a path out of the crisis that has brought down governments in Greece and Italy, forced painful austerity programmes in several countries and threatened to kill off the 12-year-old single currency.

Analysts were quick to point out that the new measures were designed to prevent countries tumbling into renewed financial turmoil, but did nothing to solve the current crisis.

British leaders denied that they could be held responsible if the euro's plight became dramatically worse. But the anger of EU partners was barely concealed. "This is going to cost the UK dearly," a senior official was quoted as telling London's Financial Times. "They have antagonised everyone."

Mr Sarkozy, speaking after the talks that extended long into the night before ending at 4am local time yesterday, pointedly referred to the role of "our British friends" in making a new treaty impossible.

The president's allies in the French media went further. The conservative daily Le Figaro's website carried a headline accusing Mr Cameron of playing a "dangerous game". The article quoted one summit source as calling him an "intolerable troublemaker" motivated by the need to preserve harmony in his own Conservative party.

But Mr Sarkozy and Mrs Merkel were determined to present the outcome in the most positive light. Mrs Merkel said "important decisions" affecting the euro had been reached. "It was about starting the fiscal and stability union. We have made good progress ... I'm very happy with the result because we had to avoid a lousy compromise for the euro, and we have succeeded."

The French president, who had warned on the eve of the Brussels gathering that the risk of "disintegration" in Europe had never been greater, hailed the summit as historic.

Mr Cameron said he had no choice but to fight "doggedly" to protect British sovereign powers and interests. He was concerned that the City of the London would have been affected disproportionately by regulations imposed from outside. "It was a tough decision but the right one," he said.

His stand was criticised by the British Labour opposition as evidence of weakness, leaving the UK "more isolated than at any point in the 35 years of British membership of Europe".

But the City of London was relieved that Britain would not be liable to a financial transaction tax. Among Mr Cameron's demands, rejected in their entirety by the other EU leaders, was for exemption if a majority of nations approved such a levy.

One business analyst, Terry Smith, from the interdealer brokers Tullett Prebon, told the BBC that Mr Cameron could no more be described as isolated than "somebody who refused to join the Titanic before it sailed".

And the influential rump of right-wing Eurosceptics in Mr Cameron's party - many of whom would dearly like to see the UK withdraw altogether from the EU - expressed satisfaction with his stubborn defence of national interests.

Meanwhile, the European Central Bank's president Mario Draghi welcomed the progress towards stringent national budgeting, making countries subject to automatic sanctions if deficits exceed 3 per cent of gross domestic product.

"It's going to be the basis for a good fiscal compact and more discipline in economic policy in the euro area members," Mr Draghi said.

 

foreign.desk@thenational.ae

* With additional reporting by David Sapsted in London and Reuters