Last week in Brussels, the United Kingdom for the first time in a long time refused to be dictated to by continental elites. David Cameron, under enormous pressure from the Commission, other “core” Union members, and the (then) sotto voce pro-Europe disposition of his LibDem coalition members, refused to agree to the “fiscal compact” to include all 27 member states. By doing so, he has shaped the battlefield over all financial regulation in the Union, which remains very much in play, and very important to the British financial industry.
The Union can propose a 27-state fiscal union anytime it wants, but had not done so until last week. Fiscal matters come under the portfolio of the Union member state financial ministers, known as the Economic and Financial Affairs Council, or ECOFIN. Though ECOFIN often votes on matters using qualified majority rules, the Union itself admits that “fiscal matters … are decided by unanimity.” Agreeing to join the fiscal compact would amount to giving away an effective veto on fiscal matters.
Refusing to surrender Britain’s prerogative in Union fiscal affairs in itself gives Britain leverage to continue horse-trading inside ECOFIN. If the Union wants a British vote for anything fiscal, it better be willing to budge on some relief for the City of London on any future financial regulation votes. Britain doesn’t need to have the voting system for non-fiscal matters changed to a requirement of unanimity to get this relief, only a one-off deal, or one one-off at a time.
If fewer than the 27 want to do something like the fiscal compact, and the number of member states interested and the depth of that compact seems to be dwindling daily, they can engage in an enhanced cooperation exercise. This gives Britain some leverage also, for two reasons.
First, Britain has to agree to the enhanced cooperation for Union resources to administer the project. It appears they have not yet been asked in the pique of the continental powers resulting from Cameron’s decision. Second, no enhanced cooperation exercise can prejudice a non-participant. Article 280A of the Lisbon Treaty states:
Such cooperation shall not undermine the internal market or economic, social and territorial cohesion. It shall not constitute a barrier to or discrimination in trade between Member States, nor shall it distort competition between them.
Thus, even if enhanced cooperation on fiscal matters had been agreed to by the British, if Britain did not participate whatever comes of it could in no event distort competition between the City and the compact’s participants. Since the method of the Union is to expand any activity to or beyond the treaties’ limits, Britain will very likely be able to apply this provision broadly. This provision also helps explain why the Germans really wanted Britain in the compact, because it would liquidate this protection as well.
The Union could always have the fiscal compact outside Union auspices, but that is very unlikely given the trajectory of Commission behavior over time. The Union is deeply interested in having these provisions become an integral part of the treaties and spreading the cost of Union administration over all Union members, including Britain. The scope of the compact’s proposed work, consolidated member state budget management, makes it very unlikely that the interested member states are keen to engage in this without the help of existing Union organs, no doubt ultimately grown to the large task.
So Britain played the only cards it had, and still could successfully defend the City with a little give-and-take on fiscal matters. No wonder even the most opportunistic coalition or opposition British politicians can’t say with specificity what Cameron ought to have done differently or what result might have been better.