Whatever Cameron’s motives he has left Britain horribly isolated

The Tory PM has set off a chain reaction that beggarsbelief, writes Hugo Dixon

BRITAIN’S self-immolation beggars belief. The government’s clumsy attempt to extract concessions from eurozone countries in their time of need has set off a chain reaction which could undermine Britain’s interests and even drive it out of the European Union.

It’s not clear what David Cameron thought he was doing at the European summit in the early hours of December 9 when he demanded vetoes on financial regulation in the EU. Was the prime minister asking for something he knew was unacceptable so that he could return to Britain and parade as a hero in front of the eurosceptics in his Conservative party? Or did he just vastly overestimate his negotiating position, thinking that the eurozone countries were so desperate to save their single currency that he could bounce them into accepting the British demands by presenting them with a take-it-or-leave-it offer in the middle of the night? If it was the former, Cameron was cynically putting his personal interests above those of the nation; if the latter, he was just extraordinarily inept.

Cameron did little to win allies for his position, not even circulating his list of proposals in advance of the summit, according to Reuters. Even worse, he put Britain in the position of seemingly being prepared to blow up the single currency if he didn’t get his way. In fact, Cameron didn’t have the power to stop the 17 eurozone countries from agreeing to sign a new treaty committing themselves to fiscal discipline. They just sidestepped the existing EU treaty. What’s more, they got all nine of the other countries which are part of the EU but not the single currency to sign up too. So all Cameron achieved in the middle of the night was to irritate Britain’s partners massively and isolate Britain 26-1.

Where does London go from here? One approach would be for Cameron to carry out his next threat: to try to stop the eurozone countries from using the European Commission and the European Court of Justice to police their fiscal discipline on the grounds that these institutions belong to all 27 countries. It’s not clear whether this is a legally winnable position, but pushing it would certainly make Britain look petty and further antagonise other European countries.

None of this was remotely necessary. The eurozone countries weren’t trying to impose fiscal discipline on Britain, only on themselves. In fact they weren’t trying to impose anything on Britain. True, France has often seemed like it wanted to undermine the City of London’s position as a financial centre. But, until now, it has had zero success because Britain has always managed to assemble enough allies to support its position. In future, though, that can no longer be guaranteed. France’s President Nicolas Sarkozy may find he has allies if he wants to push through regulations that disadvantage what he calls his “British friends”.

The biggest worry is that a vicious cycle develops in which the eurozone squeezes Britain off the top table because of its lack of cooperation, London behaves increasingly like a spoiled brat because it is frustrated by its lack of influence, and this further antagonises the big continental powers. Life could ultimately become so uncomfortable that Britain leaves the EU.

Such an outcome would be disastrous for the City, British industry and British foreign policy. Why would the United States, China, the Middle East and India want to deal with London, if it had no friends in Europe? It would also be harder to persuade foreign business to locate in Britain if it had only second-class access to the single market.

But it’s not too late to retrieve the situation. The business and financial community can and should put pressure on the government to find some face-saving position that allows Britain to move on in harmony with the rest of Europe.

One pressure point is the Liberal Democrats, the minority partners in the coalition. They think of themselves as pro-Europeans and are aghast at Britain’s far from splendid isolation. Their leader, Nick Clegg, who is also the deputy prime minister, foolishly backed Cameron’s negotiating strategy without thinking through how it was likely to play out. He has now performed a U-turn, saying he is “bitterly disappointed” at the outcome.

Salvaging the situation will be tricky. But Britain doesn’t have an interest in being at loggerheads with the rest of Europe or vice versa — especially when the region’s worst financial crisis in a lifetime is still raging.