THE approach of Christmas has not lifted the pall of gloom over Britain. The economy continues to slide; unemployment is rising; and prices have gone up to unprecedented levels. About 37 per cent of all British village councils have been unable to afford any Christmas lighting this year.
To add to this sense of crisis, David Cameron’s veto of the proposed treaty, or fiscal pact, at the historic EU summit convened to rescue the euro has caused consternation among his critics. Simultaneously, there is a misplaced triumphalism among right-wing Euro-sceptics of the Conservative Party. Although Britain is not a member of the Eurozone, it is an important partner of the European Union. Hence any decisions taken to drastically change the rules will affect Britain and its huge financial sector.
This British step threatens to drive a wedge between the island and the mainland. And yet, as Nicolas Sarkozy, the French President, said: “You can’t on the one hand ask not to be in the euro, and at the same time wish to be part of allthe decisions affecting a currency you don’t want, and often criticise.”
The Financial Times quoted a diplomat who put the British position even more succinctly. He likened Cameron’s negotiating stance as a man “attending a wife-swapping party without a wife.”
The truth is that ever since the euro went into convulsions following the near-collapse of countries like Ireland, Greece and Portugal, many Brits have quietly savoured the fact that they did not join the euro when it was first floated. But any hope that the UK would be isolated from the crisis proved illusory. Economies are so interlinked today, especially in Europe, that they cannot be insulated from problems in the region.
A key weakness in the whole concept of a common currency was that member countries retained much of their fiscal autonomy, and borrowed and spent pretty much as they pleased. This is despite a notional cap set by the EU on budgetary deficits. This meant that individual members were free to set their own interest rates, and control their monetary affairs.
Under the new treaty, this will change, with Brussels extending its control to ensure that EU members keep their house in order, and follow strict spending and borrowing guidelines.
If and when the treaty is ratified, member countries would have to surrender a large part of their fiscal sovereignty. It may well be that some states are unable to maintain the spending limits imposed by EU bureaucrats in Brussels for domestic political reasons. In such a situation, it is entirely possible that some members might opt to leave the EU.
If Britain continues to stand outside the Union, refusing to abide by the new rules, the others might decide to expel it entirely.
Other states have said they would accept the new treaty after putting it to their citizens for approval in national referendums.
There is no guarantee that Europeans, battered by months of sharp fiscal cuts, would vote ‘yes’.
While these internal deliberations are going on, the markets will not sit still. Facing a prolonged period of uncertainty, it is entirely possible that traders will sell certain government bonds at heavy discounts, putting pressure on these economies by raising the cost of borrowing. The European Central Bank is now committed to offer banks easy credit to maintain their liquidity. This will ease fears in financial institutions that are heavily exposed to sovereign debt from peripheral countries like Greece and Portugal.
In a sense, this crisis might end in the realisation of the dream the founding fathers of the Union had of a politically united Europe. As so often, Britain will be the odd man out. In 1963, when the Union was first launched, General De Gaulle, then president of France, blackballed Britain. For many Europeans, Britain was seen as a Trojan horse for America, given their close relationship.
And even after it did join in 1973, it did so with many reservations. There has always been a large number of Brits against the many rules written in Europe that affect everyday life in the UK. A host of health, safety and labour regulations have raised the cost of doing business. Often, EU human rights and immigration laws have overturned local legislation, causing anger over this loss of sovereignty.
For Britain, this is a moment of truth. Finally, it is being asked to answer a question it has long avoided: is it part of Europe or not? Traditionally, Brits have always talked of Europe as a distant land with quaint customs. For centuries, Britain has fought wars on the continent without being invaded. It has profited hugely from the EU through the free movement of capital, goods and labour.
The sticking point here is Cameron’s refusal to allow the EU to set rules that might injure Britain’s banks. But for the EU, it would be unthinkable to allow British banks to operate in European financial markets under a different set of rules. So basically, the British agricultural and manufacturing sectors might be made to pay to defend the banks.
Perhaps most tellingly, a recent poll revealed that a majority of Brits believe their children will be worse off than they were.
This pessimism is grounded in the bleak economic landscape ordinary people face: average workers have seen their real incomes fall 7 per cent since the recession began two years ago. And in an increasingly cold winter, a quarter of British households have fallen into ‘fuel poverty’, the term used to describe a situation when families have to spend over 10 per cent of income on energy bills.
Finally the Tory government has woken up to the need to create jobs by investing in a public works programme. Economists have been advocating this Keynesian approach for months, and even now, only 5 billion pounds have been allocated for extra capital spending. Most economists believe this is too little, too late.
But increasingly, the real decisions affecting the British economy will be taken in Brussels, and David Cameron will have very little say in the process.