Britain Isolated After Vetoing Euro Zone Pact

In marathon negotiations, European leaders agreed early Friday on a package of measures that would enforce greater fiscal discipline among member countries but at the expense of ceding some sovereignty over financial matters. They had hoped to gain approval from all 27 members of the European Union but after Mr. Cameron’s veto, had to restrict the agreement to the 17 members of the euro zone.

Mr. Cameron was asking for an exemption for Britain’s vital financial services industry from future regulations that might hurt its competitiveness. After he was rebuffed, he said he had no choice but to exercise his veto. Given the virulent anti-European mood in his Conservative Party back home, many here seemed to agree.

William Hague, the British foreign secretary, called Mr. Cameron’s step “very sensible,” and said that anything else would have meant a loss of national sovereignty. The Mayor of London, Boris Johnson, also supported the move and said “David Cameron has played a blinder, and he’s done the only thing that it was really open for him to do.”

If anything, some Conservatives are saying that Mr. Cameron should go further and reconsider Britain’s entire relationship to — and even its membership in, the European Union. Among them is lawmaker David Nuttall who repeatedly warned that Britain was “increasingly become run by Europe.”

For its part, the Labour opposition wasted no time in attacking Mr. Cameron for, it said, leaving Britain isolated and vulnerable at a critical time.

“This is the most important European summit for a generation, and its outcome is looking increasingly worrying for the U.K.,” Ed Miliband, the Labour leader, said.

Writing in the Evening Standard, he said that Mr. Cameron “had been on the sidelines” of the debate for months. “He has been hamstrung by the divisions in his own party, imprisoned by the Euroskeptics and his failure to confront his party over the last five years,” Mr. Miliband added. “If you get out of the deal-making room as he has done over the last year, you end up losing influence.”

The decision also risks alienating many members of the Liberal Democrat party, the Conservatives’ partner in the coalition government and the most pro-Europe of Britain’s three major parties. While the country’s top Liberal Democrat, Deputy Prime Minister Nick Clegg, said that he had fully supported Mr. Cameron’s veto, other senior party members were not happy at all.

“Far from keeping Britain strong, Cameron has ensured that we will lose our influence at the top table,” said Chris Davies, a Liberal Democrat member of the European Parliament. In trying to “protect bankers from regulation,” he added, Mr. Cameron had “betrayed Britain’s real interests and done nothing in practice to help the City of London.”

Bob Penn, a partner at the law firm of Allen Overy, said Mr. Cameron had “been politically boxed in by his own party.”

Outside of politics, there was widespread confusion over what this all actually means. One view was that no matter what Mr. Cameron says, Britain will still be subject to a financial transaction tax should it go ahead, at least as far as Europe has jurisdiction over its non-British banks. Those banks working in London would, under this scenario, have to pay the taxes back home.

Mr. Cameron said as early as October that London’s financial center, also called the “City” was coming under pressure from the European Union. Some lawmakers were concerned that Brussels would pass laws or financial regulations that would move lucrative financial services from London to Frankfurt or Paris.

“London is the center of financial services in Europe,” Mr. Cameron said in October. “It’s under constant attack through Brussels directives. It’s an area of concern, it’s a key national interest that we need to defend.”

Some analysts said it was far too early to make any assumptions about what Britain’s veto Thursday night would mean for the future of London as a financial center.

“The City has huge benefits for the E.U., and it’s not in the euro zone’s interest to see that evaporate and moved somewhere else,” Yael Selfin, a director at PricewaterhouseCoopers, said. “This is all part of a much longer bargaining process.”

But concerns among some lawmakers remain mainly because London’s financial sector is among the biggest contributors to Britain’s economy. Shrinking the sector by forcing business to the European continent could have a negative impact on economic growth.

“The concern is that if the U.K. finds itself increasingly isolated,” Mr. Penn said. “You can see — if you’re a pessimist — that Europe could get its revenge on the U.K. by a whole array of bureaucratic and regulatory reforms.” In that scenario, continental banks would be prohibited from dealing with the City unless the British firms adhered to Europe’s regulations.

Article source: http://www.nytimes.com/2011/12/10/world/europe/britain-isolated-after-vetoing-euro-zone-pact.html?partner=rss&emc=rss