Cameron Negotiates U.K.’s Isolation in EU

Prime Minister David Cameron said Britain refused to sacrifice sovereignty to save the euro, remaining outside an agreement by European nations to tighten budget rules.

Cameron broke ranks with French President Nicolas Sarkozy and German Chancellor Angela Merkel after he failed to secure safeguards that would have stopped European Union plans to police financial services in London, Europe’s trading hub.

In a clash that may reshape Europe’s balance of power, the euro users opted to enshrine closer fiscal union in a new treaty that leaves out the U.K. instead of amending EU treaties that date back to the 1950s. Nine non-euro members -- Denmark, Poland, Bulgaria, Hungary, Sweden, the Czech Republic, Latvia, Lithuania and Romania -- indicated they may follow suit after consulting with their national parliaments.

“We wish them well,” Cameron told reporters after all- night talks with his European counterparts in Brussels. “My judgment was that what was on offer just wasn’t good enough for Britain. It’s better to allow those countries to do their own thing on their own.”

What Cameron will present as a victory to euro-skeptic lawmakers in his Conservative Party at home leaves the U.K. increasingly isolated in Brussels. Cameron failed to win assurances that the institutions representing all 27 nations will work in their interest, not just those using the euro.

Conservatives and Europe

Last night’s negotiations make Cameron the latest Conservative prime minister to split with Europe over the single currency. In 1990, Margaret Thatcher was brought down by her own Cabinet over her refusal to agree to a timetable for joining the single currency. Her successor, John Major, had an official hide under the table at one set of EU talks to advise him as he negotiated an opt-out. That was still not enough to satisfy the most euro-skeptic of his party, who undermined his leadership.

Cameron too has found in recent weeks that it’s difficult to satisfy Conservative lawmakers on the European issue. At his weekly questions session on Dec. 7, the prime minister was assailed by question after question from his own side demanding assurances that he wouldn’t cede powers to Brussels, and would grant a referendum on any deal.

In October more than a quarter of his Conservative Party lawmakers voted in favor of a referendum on British membership of the bloc. Cameron attempted to answer the criticism today saying the negotiations amounted to lost “sovereignty” for those who signed up to the plan.

U.K. Vote ‘Inevitable’

Some even within his own Cabinet may need more than that. In an interview with the Spectator magazine ahead of the negotiations, Northern Ireland Secretary Owen Paterson said a U.K. referendum is “inevitable” if members of the single currency draw closer together to end the sovereign-debt crisis.

Foreign Secretary William Hague said Cameron’s stance will enhance respect for Britain around the negotiating table. “Over the past 15 years, British prime ministers would say things and then not do them at the summit,” Hague told BBC Radio 4’s “Today” show from Brussels. “We do do the things we say.”

A further problem for Cameron is that his coalition partners, the Liberal Democrats, are much more pro-European than the Conservatives. The Liberal Democrat leader, Deputy Prime Minister Nick Clegg, said today Britain had made “modest and reasonable” demands aimed at a maintaining a level playing field for financial services.

‘Isolated’

Douglas Alexander, foreign affairs spokesman for the opposition Labour Party, said Cameron was “a prime minister who spends so much time worrying about his own backbenchers that he missed the opportunity to advance Britain’s interests in Europe.” He said Britain is “more isolated than at any point in the 35 years of British membership of Europe.”

European leaders added 200 billion euros ($267 billion) to their crisis-fighting war chest and tightened anti-deficit rules, seeking to lure the European Central Bank into stepping up its rescue operations.

In an accord hailed by ECB President Mario Draghi, the leaders outlined a “fiscal compact” to prevent future debt runups, accelerated the start of a planned 500 billion-euro rescue fund and dropped bondholder loss-sharing provisions.

Sarkozy criticized Cameron’s “unacceptable demands” for “opt-outs” on financial regulation and accused Britain of creating a two-speed Europe.

“It’s the British opt-out of the euro that creates a two- speed Europe,” Sarkozy said. “You can’t choose to stay out of the euro, and then complain you are being kept out.”

Merkel said EU states were familiar with the position taken by Cameron given that the U.K. has had a euro opt-out “from the very beginning.”

“With the text agreed yesterday, very simply we offered the opportunity to take part in the treaty in its entirety,” Merkel told reporters in Brussels today. “I really don’t believe David Cameron was ever with us at the table.” Leaders took the decision to press ahead because “we couldn’t accept weak compromises on the euro, rather we had to make hard rules.”

To contact the reporter on this story: Gonzalo Vina in Brussels at gvina@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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