Fog over Channel: London's Veto of the Treaty to Save the Euro

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On October 22, 1 957, a London 77mcs headline declared: "Heavy Fog in Channel - Continent Cut Off." Britain's tabloid press displayed similar insularity in early December, 2011 after Prime Minister David Cameron vetoed an effort by the other members of the European Union to amend the Lisbon Treaty. The amendment would have enshrined legally binding rules governing budgetary discipline and economic policy coordination in the eurozone with the aim of avoiding another Greek debt disaster. Echoing one of its notorious front pages from the 1990s that urged its readers to tell then-European Commission President Jacques Delors "where to stuff" the European Union's new single currency, the Sun claimed that Cameron had blasted the "bully boys of Europe with a sensational Winston (Churchill-style 'Up Yours.'"

However, not everyone agreed that the Prime Minister had displayed admirable "bulldog spirit." Nick Clegg, Deputy Prime Minister and leader of the Liberal Democrats--the Conservative Party's coalition partner--complained that Cameron had not only undermined Britain's influence in Europe and the United States but also put the interests of the City above those of the wider economy. Ed Miliband, the leader of the opposition Labour Party, claimed that the veto had been a "diplomatic disaster" which had "exposed, not protected, British business." While Sir Richard Branson and a group of British businessmen warned the government of the risk that Britain would no longer be closely involved in the EU decision-making process, a poll indicated that a large majority of business leaders agreed with the Prime Minister and favored a looser relationship with the European Union.

Many EU leaders, above all German Chancellor Angela Merkel, had favored making budgetary discipline legally binding in EU treaties through a "fiscal compact" to save the euro. This approach was attractive in that it would have extended its rules equally to all EU member states inside and outside the eurozone. The European Commission would have had the ability to sue member states for non-compliance, and existing treaties would be amended to ensure maximum legal certainty. Cameron's veto has not prevented all eurozone members and non-members--except the UK and the Czech Republic--from signing a new treaty on an intergovernmental basis. Still, the result is legally messy as the treaty has been superimposed on--and alters--a substantial body of existing legislation without formally amending it. Once implemented in January 2013, this treaty will require member states to pass "binding and permanent legislation" that caps budget deficits at 0.5 percent of GDP over the economic cycle and reduces total government debt to 60 percent of GDP or less over time.

It is questionable whether these new rules will succeed when the similar 1997 Stability and Growth Pact, which required member states to respect certain "convergence criteria" by capping budget deficits and national debt as a percentage of GDP, failed because most members ignored its rules. Even if the rules succeed, it is possible that the treaty will simply compound the structural imbalances at the heart of the eurozone crisis by requiring even more austerity of debtor countries. The treaty does not appear to address the European Union's core challenge: stimulating demand and imports in surplus-creditor countries and encouraging the eurozone's growth and competitiveness. In mid-January, Standard & Poor's justified its downgrading of the credit rating of many EU countries, including previously triple-A rated France and Austria, in part on the basis that "a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating."

Still, while the British government may well have shared these legitimate concerns about the content of the treaty, its veto was not the best way to address them. It may have negative consequences, not only for Britain's domestic politics and its relationship with the European Union and United States, but also for the orientation of the European Union itself. …