At the European summit in Brussels on 8th December, 2011 David Cameron defied all predictions by becoming the first British Prime Minister to veto a European treaty (aimed at stabilizing the Eurozone). This has not only surprised but also pleased his Eurosceptic backbench MPs. In contrast, others of his critics charge that President Sarkozy of France was the real winner in Brussels by forcing the Prime Minister to exercise his veto, thus removing him in one fell swoop as an important rival in influencing the German Chancellor, Angela Merkel, leaving the field open for French officials to guide decision making in Europe. President Sarkozy of course has his own critics in France e.g. the Socialist presidential candidate, Francois Hollande, accuses him of yielding too much to Berlin.
One explanation for this turn of events is that Britain has a different view of its national interest from France and Germany, with both these nations seeking ever closer union and there is seemingly nothing to stop them going ahead with this strategy. However, the problem remains that the immediate crisis of the Eurozone has been neglected again, with no plan for the weaker members emerging from the talks. Indeed, the main issue for the Eurozone, and Britain, is not trade imbalances as such which are narrowing for its member states because of depressed activity reducing imports versus exports. More important is the major long term question of whether Eurozone members can overcome the huge loss of competitiveness since the Euro was launched.
Since 2000, while German unit labour costs have risen by less than 5%, over the same period those of France have increased by 25%, Spain by over 30% and Italy almost 40%. According to the OECD, most of these countries will not close this competitive gap in the next two years. Longer term, it is not clear if a process has been established to also allow these countries to successfully grow their economies and prevent government debt from rising inexorably at the same time.
Things do not look so good for the British economy either, with an outright break with the EU leading to the possibility of economic misfortune for both sides. The current crisis impacting the future of the EU is taking place within a tense political environment created by recession and an angry public suffering real hardship across Europe. For Britain the challenge is to re-establish or redefine its relationship with the EU, without damaging its current trading partnership.