Cameron Go-It-Alone on Euro Can’t Cut Britain Adrift From EU

U.K. Prime Minister David Cameron
David Cameron, U.K. prime minister. Photographer: Jock Fistick/Bloomberg

Prime Minister David Cameron’s decision to distance Britain from European efforts to save the euro isn’t likely to make the U.K. more independent of the bloc.

The difference now is that British diplomats may be fighting to regain ground lost by Cameron’s decision to go it alone as they try to influence policies inimical to U.K. interests. At stake are decisions on the regulation of financial services, energy, farm subsidies and defense cooperation.

“There’s not a lot of goodwill towards the U.K. at the moment,” Robin Niblett, director of the Chatham House foreign-affairs research group in London, said in a telephone interview. “There will be some bad blood towards British diplomats in the near term.”

Cameron refused at a Dec. 8-9 summit to back a 27-nation fiscal pact without ironclad guarantees of a British veto right over future financial regulations, saying they posed a threat to London’s standing as Europe’s leading financial center. Ed Miliband, the leader of the opposition Labour Party, said yesterday the move was a “diplomatic disaster.”

Britain is tightly locked into a system of European regulation in which decisions taken in Brussels in setting common standards are also be applied by countries outside the bloc. That even applies to those that have no intention of joining, such as Norway and Switzerland, because their economies are so interlinked with those of EU nations.

The EU is the U.K.’s largest market, destination for 54 percent of its exports last year even as Britain has stayed aloof from the single currency.

‘European Credentials’

British officials have to be “very careful” with the signals they now send and should take steps to boost their “European credentials,” Peter Mandelson, a former Labour U.K. business secretary and EU trade commissioner, wrote in the Guardian newspaper. Other European nations have put up with U.K skepticism in the past because they “genuinely valued Britain’s membership of the EU,” he said.

“British isolation clearly shows that that country’s government regards the European Union as a simple free-trade area,” Joseph Daul, a French member of the European Parliament, told the assembly during a debate today in Strasbourg, France. “It has no consideration for solidarity and responsibility toward its partners.”

Rebate Questioned

Daul, the floor leader of the European People’s Party in the 27-nation parliament, said the EU should consider scrapping a rebate the U.K. receives that limits its contribution to the bloc’s budget. That amounted to 3.5 billion euros ($4.6 billion) in 2010.

“The British check is now up for question,” Daul said. “Fellow citizens’ tax money should be spent on something other than compensating selfish nationalism.”

Cameron’s Cabinet met today for the first time since the EU summit. The prime minister defended his stance in Parliament yesterday as Deputy Prime Minister Nick Clegg, who criticized Cameron’s Brussels decision as leader of the pro-EU Liberal Democrats, stayed away from the chamber.

“Clearly, there were differences of opinion but also there’s a lot of common ground on things like how we push ahead with the single market and how to address the debt crisis in the in the euro zone,” Cameron’s spokesman Steve Field told reporters in London after the Cabinet session. About half of all ministers spoke during a discussion on Europe that lasted almost an hour, Field said, without giving details of what was said.

‘Marked Decline’

A YouGov Plc opinion poll for today’s Sun newspaper showed a “marked decline” in the number of Britons wanting to leave the EU, with 43 percent of respondents backing a pullout against 36 percent who think the U.K. should stay in. That compares with 52 percent said they would to leave, the polling company’s president, Peter Kellner, said in an e-mailed statement, describing it as “the narrowest result that YouGov has detected in recent times.”

YouGov questioned 1,724 adults on Dec. 11 and yesterday for the poll, for which it gave no margin of error.

For Graham Mather, president of the European Policy Forum in London, Cameron’s government had already lost influence in Europe. That was the result of a decision he made before coming to power last year to pull his Conservatives out of the EPP, to which Angela Merkel’s Christian Democrats of Germany and French President Nicolas Sarkozy’s power base belong.

“We have not been brilliant at getting our people in the commission in areas like the single market or competition,” Mather said in a telephone interview. “Britain wasn’t in a strong position to start with.”

Transaction Tax

Financial regulation will dominate the EU’s legislative program over the next two years, with proposals ranging from curbs on short selling to a financial-transaction tax. The bloc also has to implement Basel III banking rules, and Britain has filed a legal challenge to the European Central Bank’s policy on clearing houses.

British negotiators have struggled to get their way in a number of areas. The European Commission, the EU’s executive arm, made proposals in July to apply Basel III that the U.K., along with other governments including Sweden, criticized as not in line with broader international accords.

George Osborne, the U.K.’s finance minister, has said that the country’s regulators need discretion to impose higher capital levels on their banks than they would be granted under the commission’s plans.

Meanwhile, lawmakers in the EU parliament last month backed a proposed short-selling law that paves the way for an optional ban on naked credit-default swaps on sovereign debt.

The U.K. argued that parts of the agreement may be illegal because they give EU regulators too big a mandate.

ECB Sued

In the courts, the U.K. sued the ECB in October over plans to block trades in some euro-denominated securities from being cleared outside of the 17 countries that share the currency. It was the first such move by a government. The U.K. has also fought against provisions being included in a draft EU derivatives law that could encourage relocation of clearing houses to euro-area nations.

British ministers have also said they intend to veto a September plan by the EU for a financial-transactions tax that would take effect in 2014 and raise about 57 billion euros a year. The proposal would apply a levy of 0.1 percent on trading of stocks and bonds, with a 0.01 percent rate for derivatives contracts.

“Politically the U.K. has lost power and credibility, and its isolation weakens its future position almost certainly,” Joan Costa i Font, professor of political economy at the London School of Economics, said in response to e-mailed questions. “There will be will be a lasting effect, as effectively the EU will operate from now on as an EU of 26 plus the U.K.”

Budget Demands

Cameron has been fighting to trim the EU’s operating budget, arguing that bureaucrats and lawmakers must tighten their belts just as citizens in member countries are having to pay down record deficits. Yet in October, the Commission told the U.K. to prepare for higher payments to the $170 billion budget as part of plans to increase spending on research and energy.

While Cameron was locked in talks in Brussels last week, the U.K.’s energy secretary Chris Huhne, was working alongside his EU counterparts at a climate summit in Durban, South Africa. The EU resumes talks early next year about moving to stricter goals on cutting carbon emissions.

Europe pledged to adopt a binding post-2012 target in Durban in exchange for a vow by both industrialized and developing countries to commit to carbon cuts under a new deal with “legal force.”

“People used to joke that Switzerland was only just outside the EU and Britain only just in it,” Mather said. “I don’t think there’s been a big alteration of that position.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE