December 9th, 2011
10:50 AM GMT
London (CNN) – Ten hours around the negotiating table were not enough to convince British Prime Minister David Cameron to back down on his demands for safeguards to his country’s interests.
As such, the leaders of France and Germany showed him to the door and decided to settle for closer budget discipline among eurozone countries. According to German Chancellor Angela Merkel: "David Cameron sat with us at the table, we made a decision for this text, we do not have time for weak compromises regarding the euro."
The result of round one of this week's "battle of Brussels" was widely expected but it does raise the worrying prospect of a two-tier Europe emerging, with the 17 euro-using members on one side and most of the remaining 10 non-eurozone states on the other.
Speaking ahead of the European Union leaders’ last "Save the Euro" summit on October 26, Benedicta Marzinotto, of think tank Bruegel, said the emergence of an economic split between the two was already evident. “Whether it’s the eurozone emerging faster or the other group being faster I’m not sure (yet),” she said then.
Even before this week’s proposed treaty change Marzinotto says mooted amendments to the governance structure have started pointing in that direction for a while.
Britain doesn’t share the euro. So, what’s the big deal?
It's true that for more than a decade countries like the UK have been on the outside of Europe's core currency union and during that time they have made a pretty good go of monetary independence.
Being outside the eurozone has its benefits. States can print money to stimulate the economy when needed, and the subsequent inflation has an added bonus of shrinking the country’s debt pile. Okay, the flipside is a gradual erosion in buying power - but at least you can avoid more than 20% unemployment, like Spain.
Eurozone countries on the other hand cannot inflate their way out of their problems because the ECB keeps a tight lid on price increases.
Granted, signing up to a treaty that could give more powers to a eurozone dominated by a Franco-German axis does seem a bit far-fetched, especially if the new framework is designed to underpin a currency you don't even use.
But risking your long-term friendship by blunt refusals could also have long-term consequences for countries holding out against Europe’s so-called fiscal compact.
This is because they risk being marginalized when future key economic decisions are tabled.
The UK’s economy is heavily skewed towards financial services in particular which is why Cameron is so keen on safeguards and an option to opt-out of financial transaction taxes Germany and France are adamant they will introduce.
London’s banking sector in Britain is a huge earner for the government, accounting for 11.2% of nationwide tax income last year.
Yet British industry is not as diversified as some of its powerful eurozone neighbours - like France and Germany - where manufacturing is still a hugely important and successful part of their economies. If we do get another credit crunch it will feel the pain more, just like in 2008.
The UK may be Europe’s biggest “Island Nation” but it cannot afford to become isolated economically from its EU neighbors.
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