If the UK looked isolated going into the all-night summit, it certainly is after the first round of marathon talks in Brussels to address the sovereign debt crisis. Late last night David Cameron wielded a British veto after the UK’s hard line negotiating position failed to secure safeguards for the City of London that he demanded as the price of Britain approving a new treaty.
Cameron’s decision forced a break-away inter-governmental treaty between 23 states – the 17-member eurozone plus 6 other states. These states will now meet on a monthly basis to deepen co-operation and implement strict new fiscal rules. The aim is to draft the intergovernmental text in time for the EU leaders’ Spring summit in March 2012.
This afternoon the summit’s published conclusions confirmed rumours that the remaining 3 states – Hungary, Sweden and the Czech Republic – also plan to join this group. The UK, therefore, appears to be in a minority of 1.
But how will the ‘Euro-plus’ group function?
David Cameron refused to share the Brussels institutions – including the Commission – with the new group, arguing that the resources of the EU institutions cannot be used for intergovernmental purposes.
As it stands it’s anybody’s guess quite what the outcome will look like – EU lawyers are scrambling around in Brussels to find a solution. These dry questions matter because if the markets think the new deal is poorly resourced and impossible to enforce then the summit will have failed. The UK, however, is sticking to its guns by threatening to take the ‘Euro-plus’ group to the European Court if they try to use EU institutions.
The risks for UK business
The risk now for the UK, and indeed UK business, is how isolated could the UK could become if the so-called "Euro-plus" states forge ahead with their plans to shore up the Euro. "It’s legal chaos. And it has the potential to be even more chaotic for UK business in the long term" said Bruno Waterfield, the Daily Telegraph’s EU Correspondent.
Even if there is no new treaty, the 26 could forge ahead under so-called enhanced cooperation. The 26 could agree decisions across the EU’s single market which is the jewel in the EU crown for the UK.
Prior to the summit the UK was regularly outvoted in the Council of Ministers over financial services regulations, primarily because financial services decisions do not need unanimity. Fast forward to this afternoon and the UK is in a worse position because all the other states will be working more closely together.
If the UK manages somehow to negotiate an opt-out on certain issues, this could be seen as an excuse by the 26 to block the UK from having full rights and access of the single market. "With rights come responsibilities. The UK cannot have access without the same commitments as everyone else," one senior Commission official said.
Across the rest of Europe there is almost complete disbelief that the UK tried to carve out ‘safeguards’ as Europe burns; in the words of a much-quoted French official, “it is like coming to a wife swapping party without bringing your wife”.
So what would this mean for UK business?
The City of London, and other business groups in Brussels, will be watching anxiously to see how the enhanced cooperation between the 26 states plays out in practice and, of course, to see how the newly strengthened European Parliament responds.
If UK businesses want to retain access to the EU’s single market they will have to negotiate harder. Politically, the UK’s position in Brussels is now at its lowest ebb for a long time.
The EU needs UK business and the UK needs its main trading partner too, so a compromise is there to be found. But one thing is for certain, UK business, particularly global ones, will have to think more broadly about building pan European coalitions if they are to protect their own interests and no longer just rely on number 10 and 11 Downing Street to do their bidding for them. A new strategy for influencing the EU will be required for all business sectors in the UK because even UK government officials might find themselves locked out of negotiations.
So what next ? A two-tier Europe?
One thing that is for certain is that we will have months of uncertainty from a legal point of view. Based on the previous negotiations on a new EU treaty it could be a long slog. Or will it?
Sources have told MHP over the last number of weeks and months that EU lawyers in Brussels had been looking at a potential mini treaty for the Eurozone. Commission President Barroso, Merkel and Sarkozy have repeatedly made references to "quicker decision-making mechanisms for the EU" in speeches. So the cynics and Eurosceptics might say that this was a secret plan all along.