Duff article originally published in the FT: The new British policy of sabotage

Andrew Duff MEPNot cock-up but conspiracy. Not stupid but sabotage. That is the inevitable verdict on the British government’s performance at the European summit on December 8-9. David Cameron’s coalition government was driven by the need to avoid a referendum onEurope – which device, perversely, they have entrenched in the British constitution.

Throughout the autumn, British ministers continued to insist, against the evidence, that no treaty change was in the offing. When reality dawned inLondon, the government had to stand traditional British policy on its head. Gone were the days of divide and rule, of keeping a seat at the negotiating table, of damage limitation, of defensive “red lines”; in came the new British policy of sabotage.

Mr Cameron went to Brussels clutching a package of demands that flatly contradicted his habit of preaching against single market protectionism and gave the lie to George Osborne’s earlier admission that fiscal union for the eurozone was relentlessly logical. Saboteur Cameron was stalked in theBrussels corridors by William Hague in the role of political commissar.

The UK’s seven-point plan for a protocol to protect the interests of the City of London was spurious. It sought to return to national authorities powers that have been granted to European supervisory agencies, and to deny them additional discretionary powers. Interfering in a current legislative process, the UK demanded a return to unanimity away from qualified majority vote (QMV) on the fixing of additional capital requirements for institutions and on deposit guarantees.

It raised a false alarm about the removal of the European Banking Authority from London. It sought to protect third country financial institutions that operate only in Londonfrom EU supervision regardless of their contribution to systemic risk of the euro. And it tried to pre-empt current litigation in the Court of Justice on the matter of discrimination within the single market for financial services on the grounds of location.

José Manuel Barroso, president of the European Commission, was surely right to argue that these British demands risked undermining the integrity of the single market. Suspicions of British motives were confirmed when Mr Cameron rejected out of hand a counter-proposal by Mr Barroso that would have strengthened the single market concept of the level playing field. Then the British bluff was called. Herman Van Rompuy, the European Council president, announced that Mr Cameron’s veto had forced his partners to contract an intergovernmental treaty that would exclude theUK.

The first draft of the treaty, delivered a week later, articulates in legal form the political agreement of the eurozone leaders “to strengthen their budgetary discipline and to reinforce their economic policy co-ordination and governance”. It is modest in scope, limiting its advance on the EU treaties to refining the broad economic policy guidelines and the excessive deficit procedures germane to all member states (now minus theUK) and to adjusting special measures relevant only to eurozone states.

The intergovernmental approach may be convenient but has weaknesses. It adds to the legal complexity and political opacity of the EU’s system of governance. Its provisions are and can only be addressed to national governments and parliaments and not to the EU institutions. It therefore has less force than a revision of theLisbontreaty, relying on moral hazard and political pressure rather than the rule of supranational law.

In legal terms, the international agreement on “reinforced economic union” is subsidiary to the EU treaty and to the jurisprudence of the European Court of Justice. Its provisions may seek to interpret, clarify or expand the EU treaty definitions of what constitutes an excessive deficit or which preventive and corrective measures should apply, but it cannot contradict the provisions of the EU treaty itself, which continue to have primacy. And the new treaty needs to ensure that it respects the strictures of EU law, which rule that member states must not do outside the EU treaties what can be done within them.

Particularly sensitive is the use by its signatory states of the services of the Commission on the basis of what amounts to a gentleman’s agreement with theUK. Mr Cameron and Mr Hague have threatened to stymie the Commission and even to block the use of Council premises by the eurozone. This bodes ill. If the British decline to act like gentlemen, there will have to be a formal EU law (“flexibility clause”) to permit the Commission to work within the new formation, or even an international treaty between the 27 (EU1) and the new core group (EU2). Both of those instruments would be subject to a unilateral British veto.

In addition to agreeing the new treaty, therefore, the eurozone leaders emphasised their willingness to act as much as possible through secondary legislation within the terms of the current treaties in which the British, if necessary, can be happily and consistently out-voted. The Commission will now back the European parliament in seeking to strengthen the “six pack” of measures of economic governance put in place this year.

Where unanimity rules apply in the Council – in areas such as tax harmonisation, the functioning of labour markets and the sustainability of welfare systems –Lisbonprovisions on “enhanced co-operation” can be deployed. These clauses allow at least nine states to go forward to replace unanimity by QMV as long as the operation of the single market is not impaired – in which case the Court of Justice has to adjudicate. The court will also be involved by virtue of a “special agreement” in the diverting circumstances that one of the signatory states of the new treaty chooses to sue another for breach of its provisions.

There is much speculation about which of the nine other non-eurozone states will agree to be bound by the intergovernmental treaty. Legally speaking, at least, the answer is straightforward. Because intergovernmental agreements are not subject to the same rigid unanimity rules that govern the entry into force of EU treaties, any state can join the treaty at a time of its choosing simply by concluding a national ratification process. The draft treaty makes this flexibility explicit by allowing its entry into force once more than half of the eurozone states have ratified it. We know for sure that even the 17 eurozone states should not be treated as a uniform bloc, and that some, notablyIreland, might face the peril of a referendum.

So this is the shape of what we must begin to think of as EU2. The treaty will be signed in a couple of months. It establishes a pact of fiscal discipline but not a union of fiscal solidarity, with joint and several liability for sovereign debt, managed by a federal economic government. The treaty is therefore not the end of the story and might in itself have a short shelf-life. It is already perfectly clear that the markets testing the euro demand more fiscal integration than is proffered by the first draft.

The draft agreement on reinforced economic union aims for its eventual incorporation within the EU treaties “as soon as possible”. This objective will remain frustrated at least during the life of the present British coalition, which purports to remain in office until 2015. Despite some Liberal Democrat protestation, the UK will continue to reject any further steps towards political union. So the former and more profound debate about how best to accommodate the Brits as they depart the scene must soon begin all over again.

My previous idea was for theUKto be persuaded to adopt a form of associate membership of EU1, leaving the field clear for the others. I was clearly naive. What is presaged by the latest turn of events is that theUK’s partners will shortly step aside from EU1 and craft, through a convention, a decent and durable constitutional settlement for a more federal EU2.

The UK may send observers to such a convention, as it sent an official to theMessinaconference in 1956, which set up theEuropean Economic Community. (The observer left.) But the British will never again be allowed to wield their veto against the constitutional evolution of Europe. Nor should they try to do so.

Andrew Duff MEP is Liberal spokesman on constitutional affairs and president of the Union of European Federalists

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