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Financial services

Europe unites, Europe splits

  • The dust is settling on what may be an historic EU Summit in Brussels on 9 December, with a potentially far-reaching agreement on a step towards greater fiscal integration of 26 EU member states, from which the UK alone has chosen to be excluded.
  • EU states have bought forward the creation of the EU’s new ESM bailout mechanism and agreed to negotiate tough new deficit rules. These steps probably fall short of the kind of massive resources that might have calmed market nerves about preventing contagion from a Spanish or Italian liquidity crisis. That will matter less if the package of fiscal discipline measures is enough to unlock ECB support for more direct bond market interventions. 
  • Britain’s ‘veto’ – which was nothing of the sort – and self-chosen isolation has been greeted both in Britain and in continental Europe as the beginning of the end for Britain in Europe. It almost certainly is not, although it suggests that relations between the UK and ‘core’ Europe are going to become increasingly distant and tense in the years ahead.
  • In the immediate short term the UK may have done its European partners a favour. By refusing to participate it has ruled out change to the European Treaties, which would have required difficult referenda in a number of European states. Instead the other members of the EU will negotiate a new intergovernmental treaty.

The views expressed in this report can be attributed to the named author(s) only.