UK Politics

Q&A: David Cameron and the EU summit on the eurozone

Twenty five of 27 EU countries are joining a new treaty on fiscal discipline, aimed at avoiding a repeat of the eurozone debt crisis. The UK is not one of the them, after Prime Minister David Cameron effectively vetoed an EU-wide treaty change in December 2011. Here is a guide to what happened.

What has happened?:

In 2011 UK Prime Minister David Cameron blocked changes to the EU's existing Lisbon Treaty which would affect all 27 member states, arguing it was not in Britain's interests. Instead the 17 EU countries which use the euro, and eight other EU states, most of whom intend to join the single currency in future, have agreed to join an intergovernmental agreement - aimed at preventing a repeat of the current debt crisis. A month after Mr Cameron's veto, the Czech Republic - which is committed to joining the euro in future - also said it would not sign the new treaty, for constitutional reasons.

Why did David Cameron refuse to sign up?

Before the summit in December 2011, Mr Cameron said he would not sign up to any change involving all 27 member states that did not protect British interests - particularly on financial services and access to the single market. He sought a separate legally-binding "protocol" to protect the City of London from more EU financial regulations but didn't get one. European Commission President Jose Manuel Barroso said the specific protocol demanded "was a risk to the integrity of the internal market" and had made "compromise impossible". Mr Cameron later told MPs he had simply asked for a "level playing field for open competition for financial services in all EU countries".

What else did the UK government demand?

According to the Financial Times, Mr Cameron also wanted an agreement that the European Banking Authority would remain in London, protection for US financial institutions based in London that do not trade with the rest of Europe, and an agreement that any changes - including a financial transactions tax - would require the unanimous backing of all EU members. He didn't get any of those either.

What does it mean for UK financial services?

That is a matter for debate. The UK retains a veto on matters to do with EU-wide taxation, including the contentious financial transactions tax it has been opposing. However the new group is likely to discuss tax and financial regulation for the eurozone which could potentially undermine the UK's position. Without knowing what measures will be discussed - it is hard to say what the danger is. Labour say Britain has been left exposed because it will no longer be "in the room" when issues are discussed and none of Mr Cameron's safeguards were secured. Mr Cameron argues that a treaty involving all 27 states would have "changed the nature of the EU - strengthening the eurozone without balancing measures to strengthen the single market", he said. That was the biggest danger, he argues. And he said his actions had resulted in an "important safeguard" - arguing that a treaty "outside the EU cannot do anything that cuts across European treaties or European legislation".

Who is responsible?

French President Nicolas Sarkozy laid the blame squarely at Mr Cameron's door. He says he would have preferred a deal involving the 27 EU states but that wasn't possible "thanks to our British friends". German Chancellor Angela Merkel said on the day she did not believe Mr Cameron had really "sat with us at the table". Labour has suggested the PM never wanted a deal in the first place because he could not have sold it to his Eurosceptic backbenchers. But others have suggested European leaders had their own reasons for ruling out the UK's demands. Eurosceptic Labour MP Frank Field summed up that argument in the Commons when he asked: "At what stage of the negotiations did the prime minister realise that France and Germany would do their best for us not to sign?" Lib Dem David Laws argued in the Times that it was the "worst kept secret in Europe that President Sarkozy wanted Britain to overreach itself so that France could isolate the UK". Mr Cameron says he negotiated in "good faith" and had sought an agreement involving all 27 states.

What happened next?

At a summit in January, the treaty was finalised and is expected to be signed by the leaders of 25 EU states at their next summit in March. But it will have to be ratified by 25 national parliaments before it comes into force. There had been some doubts about the deal in other countries and Mr Sarkozy has said it will not be ratified before France's presidential election in the spring. His socialist rival for the presidency, Francois Hollande, had said if he was elected he would renegotiate the accord.

What is the agreement other EU states are pursuing?

It's called a "fiscal treaty" but under EU law it's an inter-governmental agreement, not yet written into EU treaties. The aim is to co-ordinate eurozone budget policies and impose penalties on rule breakers. For eurozone countries, it means they will have to enshrine in their own national constitutions tougher budget rules. These include an agreement that structural budget deficits never exceed 0.5% of gross domestic product (GDP), sanctions for those whose deficit exceeds 3% of GDP and a requirement that they submit their national budgets to the European Commission. More details about the treaty can be found here.

What is the row about EU institutions?

The new fiscal pact will also empower the European Court of Justice to monitor compliance and impose fines on rule-breakers and spells out the enhanced role of the European Commission in scrutinising national budgets. Mr Cameron has expressed concerns about the use of EU institutions by the new, smaller eurozone group. But he has since said he will not block the use of the European Court to enforce the fiscal pact - although he says he will "watch this closely" and may take legal action "if our national interests are threatened by the misuse of the EU institutions". Labour leader Ed Miliband said he had secured only a "phantom veto" which left Britain isolated without any safeguards.

What does it mean for the coalition?

The UK prime minister has faced a difficult balancing act on Europe - leading a party with a large number of Eurosceptics MPs in it and leading a coalition which also includes the generally pro-European Liberal Democrats. His stance has been welcomed by is Eurosceptic backbenchers.

Lib Dem leader Nick Clegg, the deputy PM, was "bitterly disappointed" with the outcome of the summit - fearing the UK would become "isolated and marginalised" within the EU. He stopped short of blaming the PM, saying he was put in a difficult position by his own backbenchers and faced "intransigence" from France and Germany.

Despite tensions within the coalition, senior figures from the two parties are insisting that the coalition will not fall apart over the issue.

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