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Did UK just withdraw its Fiscal Compact veto?

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June 11, 2015 Comments (0) Views: 2152 Homepage

All Britain wants in Europe is an “And”

If you summarise the last twenty-five years of European history as France getting ‘Monetary Union’ followed by Germany getting ‘Economic Union’, then it really isn’t asking much of Britain to want an ‘and’ as part of the deal.

Seriously, if someone can put it all together in the coming few years, there really could be something approaching a properly functioning ‘Economic and Monetary Union’ (EMU) within the European Union (EU) at the end of the road (let’s not call it a rainbow), with each of its three biggest powers all contented, for once. Actually, it would probably be the first time that the UK, France & Germany were simultaneously happy with their European lot in twenty-five years or so. And you’ll never guess, but when the UK, France & Germany are all happy, then region’s economy tends to do rather well, too.


A quick European tour

Time for a quick history tour, then. Europe had been looking to bring a semblance of order back to its exchange rate arrangements since the demise of Bretton Woods in the early-1970s. In 1979, it had introduced the European Monetary System (EMS) and its 2¼% fluctuation bands. In 1988, European Commission President Jacques Delors was asked to study proposals for a full-fledged EMU, proposals which were largely approved in mid-1989, with a first stage towards eventual Monetary Union pencilled in for 1990. Like the proposed Political Union launched alongside it, though, Monetary Union would probably have languished in committee had it not been for the fall of the Berlin Wall in late-1989, when everything really did change.

France gets its Monetary Union

Although he had his private misgivings about the long-term consequences of German re-unification, French President François Mitterand knew he was relatively powerless to stop it. So he made a deal of sorts with German Chancellor Helmut Kohl in which the German Deutschemark would be superseded by the Euro. A new treaty was needed: the Maastricht Treaty, as it came to be known. Now it was the German Bundesbank’s turn to be unhappy: it worried (rightly, as it turned out) about how countries would behave once they were in the Monetary Union, and whether they would let their guard down once they were inside it. But the Treaty change was done, and so the best the Bundesbank could do was a Stability and Growth Pact instead, which in the end lacked teeth. When the Global Financial Crisis struck in 2008, what it revealed about Europe was that many countries had indeed let their guard down with respect to government budgets and bank supervision.

Germany gets its Economic Union, just about

By the end of 2009, one Euro member after another began to drown in debt (in Greece, they had even taken liberties in declaring their existing debt, never mind the new debt): soon there were enough countries in the headlines to christen new acronyms, like PIIGS. France may have got its ‘Monetary Union’, but Germany had come up short with respect to ‘Economic Union’, and suddenly everything was in danger. Things came to a head on a beach in Deauville in October 2010 at a bilateral French-German summit, by which time even the French economy was being threatened by a back-wash of funky finance. It was left to President Sarkozy to concede that, whatever the difficulty, there would need to be some Treaty changes so that German could finally get its ‘Economic Union’, and maybe the European Debt Crisis could be overcome.

German hopes of an EU Treaty change to meet its ‘Economic Union’ needs were ultimately dashed by the UK in late-2011, which is somewhat ironic – of course – given that the UK isn’t even a Eurozone member. Germany did get an ‘Economic Union’ Treaty – it’s called the Treaty on Stability Coordination & Governance – and this one does look like it has teeth (unlike the earlier Stability & Growth Pact). But its final incorporation into the EU Treaties would have to wait.

All Britain wants is an ‘and’

Fast forward to last night where, true to form, UK Chancellor of the Exchequer George Osborne did announce a new fiscal framework for the UK during his annual Mansion House speech. As I wrote yesterday (‘Did UK just withdraw its Fiscal Compact veto?’, The Top Note, 10th June 2015), this is similar enough to the provisions of the Fiscal Compact that it seems to me it will ultimately be a way to allow the UK to unblock its veto in good time for the next review of the Compact in late-2017 (when it will be the UK’s turn to chair the EU Council meetings, ironically).

But the Chancellor also had this to say about the UK’s goals with respect to its desired renegotiation with the EU:

“So among the principles we seek to establish in this re-negotiation are these simple ones: fairness between the euro-ins and the euro-outs enshrined, and the integrity of the single market preserved. It’s in our interests that the Euro is a successful, strong currency. So we’re prepared to support the Eurozone as it undertakes the further integration it needs. But in return, we want a settlement between the UK and the Eurozone that protects the single market and is stable, fair and lasts.”

Did you spot the key word there: “fairness between the euro-ins ‘AND‘ euro-outs enshrined”? It isn’t too much to ask, is it? And look what we’ve got to offer in return: “we’re prepared to support the Eurozone as it undertakes the further integration it needs” (that’s code for “we’ll unblock our Fiscal Compact veto if you’re nice enough to us”, as I read it).

That’s right: the UK really just wants its ‘and’ condition to be met. Fairness in the EU rules between those who are in the Euro AND those who aren’t.

Brussels takes note

They certainly heard Chancellor Osborne in Brussels, judging by the subsequent reshuffle of the forthcoming EU Council agenda, and the addition of the following five characters:


For the UK, they might be the most important five characters on an EU meeting agenda in decades.

All eyes on H2’17

“Where there’s a will, there’s a way” said German Chancellor Angela Merkel recently about the prospects of reaching a renegotiation deal with the UK that will satisfy everybody (including the British people, by the way). Others seem guardedly optimistic, too, somewhat surprisingly. But in terms of the last twenty-five years of European history, it’s really just the UK’s turn to get something out of the whole process. France got its Monetary Union, after all. And Germany got its Economic Union. And all the UK wants is fairness between EU members AND non-EU members, like itself.

It’s just our turn, really. But how?

Might it all happen within the confines of a full Treaty amendment? That’s possible, particularly with the new ‘simplified revision procedure’ rules enacted as part of the Lisbon Treaty (remember, UK aspirations are normally to reduce EU powers, not increase them!). Or maybe the Parties will reach an agreement of the sort they made with Denmark in 1992 when it failed to ratify the Maastricht Treaty (here, countries promised to make requisite changes in any future treaty adjustment, and true to form – for once – they eventually did).

Either way, with a French Presidential election scheduled for H1’17, and a German election in early H2’17, the next British Presidency of the European Council looks likely to be an interesting one. And, remember: it’s by December 2017 that the fate of the Fiscal Compact is to be decided.

Forgetting Greece, just for a minute, maybe there really is a way for the UK, France & Germany to all be happy again. The economy would appreciate it, that’s for sure.

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