UK's EU Exit

The vitriol aimed at the UK and David Cameron, mainly from Europeans (but also some Americans) after they opt-ed out of the latest EU reform pact is something I really don't understand.

I am not his biggest fan but no sane person could have seriously expected Cameron to have signed up to a deal that put at risk 10% of the UK's GDP, assigned effective power of veto over domestic budgets (ostensibly) to the EC (de facto Germany) and increased the UK's contribution to the EU while reducing their influence. Anyone who expressed surprised at the outcome or professed belief that the UK's position was a bluff was either not very bright or faking it. The whole thing reeked of a stitch-up. Having bullied every other country into submission the choice presented was EU by Franco-German rules or not at all. Clearly Britain was going to choose smell ya later.

The "Isolated Britain" aspect is also being massively overdone. The UK has always been naturally sceptical of Europe and opting out of a restrictive deal that may never even be implemented is not really isolating them any further than they already are. From where I'm sitting Britain's recent influence in Europe seems to have been limited to vetoing things that we didn't want therefore "isolation" will not be much of a loss of power as we won't introduce these things in the first place. In fact, though my natural inclination is pro-europe (mainly from a ease-of-travel PoV rather than anything political), I'm beginning to see less and less to be gained from being an EU member.

Sarkozy's reported anger at Cameron for concentrating on issues that weren't relevant to the current crisis was disingenuous: nothing in the pact addresses the current crisis. In fact the deal itself is pretty underwhelming. The main provisions:

• A cap of 0.5% of GDP on countries' annual structural deficits - this is one of the Tory's stated aims so they would have had little argument with this.
• Automatic consequences for countries whose public deficit exceeds 3% of GDP - The same rule already exists in the Stability and Growth Pact only France and Germany both decided that the rules didn't apply to them when it didn't suit them.
• Tighter rules to be enshrined in countries' constitutions - would not have applied to the UK anyway as it doesn't have one.
• European Stability Mechanism to be accelerated and brought into force in July 2012 and it's limit raised - The Euro may well have ceased to exist by July 2012.
• EU countries to provide up to €200bn to the IMF to help debt-stricken eurozone members - This not enough to save any given economy outright and regardless all this money is coming out of one pot. If it goes to the IMF it can't also go to the ESM.

The "Tobin Tax" that was central to Cameron's rejection is not specifically mentioned in the agreement. Presumably, given that Merkozy refused to countenance an opt out, their intention was to tack it on later and hope the the UK didn't notice when it signed. Even more telling is that Ireland did manage to negotiate protection for their ultra-low corporation tax rate, an issue that often galls other EU countries especially after having had to bail them out. Clearly they felt there was little to be gained by sticking on this point for Ireland where they felt there was much to be gained by hardballing the UK. I'm sure the fact that beating-up on Les Rosbifs is domestically popular and a French presidential election is looming had nothing at all to do with it.

The real impact of a non-universal Tobin tax is unknowable in advance but as imposing a tax is clearly more of a risk than not imposing a tax why would you do it at a time when economies are already under extreme stress? Particularly as the tax disproportionately (estimated at 70% of the total) falls on the UK (and coincidentally is therefore politically popular in France and Germany) in a sector that (whatever your feelings about it's morality) is core to the UK economy and is aimed at an activity (high frequency trading) that clearly is not at fault for the Sovereign debt crisis but is culturally distasteful to the French.

Presumably, as the next biggest financial centre in Europe is Frankfurt, the Germans are actually going to be rather less keen to now see this tax imposed, which may be another reason it wasn't actually mentioned in the agreement. If the intention really is to raise more revenue (as opposed to just a punitive tax) then a much easier solution would be to cut the massive (€55bn pa; 40% of the EU budget!) CAP subsidies. However something makes me doubt that Sarkozy would be quite so willing to follow this route.

Even if you ignore all its current flaws the treaty still needs to be ratified by at least four national parliaments where it's progress is far from assured. Furthermore, in order to embed these rules in the constitution it will be necessary for national referendums to be held, referendums that are all but guaranteed to fail. In order to avoid these the provisions will have to be watered down significantly to avoid having to amend the constitution, so far in fact that they're quite likely to end up with nothing at all, rendering the current posturing and politicking completely meaningless and potentially very harmful.

Stepping back, while the intention of stopping repetition of the current crisis is laudable, there are no measures agreed that will actually address the current crisis. Fundamentally the EU needs to find a way to finance the huge debt rollovers that are due in spring 2012 by multiple nations (indeed some of Sarkozy's shrillness may have been brought on by France's own economic fragility). No solution for that has yet been found. Muddling through probably won't cut it.

Stepping even further back, as has been extensively commented on in the British press, the EU is deeply unpopular outside the political classes in almost every country in the union. The desperation to avoid any kind of referendum demonstrates the politician's realisation of this. The EU is as unpopular in net contributors (UK, Germany, Netherlands) as it is in net beneficiaries (Greece, Spain Ireland). How long "the project" can last without popular support is a question many would like to remain unanswered.