It's raining men in Brussels: Juncker Commission at risk of humiliating veto by MEPs over lack of gender balance

We are now at the halfway point in terms of nominating the next Commission with 14 out of 28 member states having publicly announced their candidates. The line-up suggests we will have the most senior Commission to date with no less than four former Prime Ministers: Andrus Ansip (Estonia), Jyrki Katainen (Finland), Valdis Dombrovskis (Latvia) and Juncker (Luxembourg) himself. However, as the nifty graphic from EuropeDecides shows, there is a bit of a gender balance issue - only one of the nominees is female.

Notwithstanding the benefits of having a more balanced and representative Commission per se, the gender balance issue is important because the European Parliament - never slow to jump on a bandwagon or to give national governments a bloody nose - could veto the whole Commission if it contains too few women (even if the European Parliament's group leaders are themselves mostly male). European Parliament President Martin Schulz warned a couple of weeks ago that:

"Looking at the information currently available on the number of female candidates, the commission would not receive the backing of majority in the European Parliament."

The magic number is ten - one more than in the current Commission. This would require nine of the second group of 14 Commissioners to be female, which looks unlikely. Below we asses what the prospects are for the remaining member states to put forward female candidates.

Belgium: The good news for Juncker is that Marianne Thyssen, who has been an MEP since 1991, is among the front-runners for the post although Berlgium's current Commissioner Karel De Gucht has indicated he would like to stay on.

Bulgaria: It was reported that the outgoing socialist government would put forward Kristalina Georgieva, the current Bulgarian Commissioner international cooperation, humanitarian aid and crisis response, if she were to be given the position of High Representative even though she is from the centre-right GERB party. As such, it looks like Bulgaria will instead nominate current Foreign Minister Kristian Vigenin.

Cyprus: Androulla Vassiliou is rumoured to be retiring (she will be 71 in November) and in any case is from a different political party to the new government. No word yet on who Nicosia will send in her place.

Denmark: No news out of Copenhagen but the centre-left coalition government will likely want to replace Connie Hedegaard who is a conservative politician.

France: No formal announcement from Paris so far, but former Finance Minister Pierre Moscovici is the clear frontrunner. Former Europe Minister Élisabeth Guigou is still in the race, but she is broadly regarded as an outsider.

Hungary: Although it hasn't been formally announced, rumour has it that Orban will send Hungary's current Foreign Minister Tibor Navracsics to Brussels.

Italy: Prime Minister Matteo Renzi is still pushing for Foreign Minister Federica Mogherini as the new EU foreign policy chief. However, the Italian government would very likely put forward a different name if it became clear that Mogherini will not secure Baroness Ashton's job, and the new nominee may well be a man.

Netherlands: The most likely candidate is current Finance Minister Jeroen Dijsselbloem, although it is unclear if he would still go to Brussels if he were not to get the coveted Economic and Monetary Affairs portfolio - something Juncker is reportedly not too keen on.

Poland: Poland's two leading candidates are Foreign Minister Radoslaw Sikorski and former Finance Minister Jan Vincent-Rostowski, although there is a lot of speculation that in order to balance the Commission Poland could instead put forward Danuta Hübner, an economist and MEP who already served as the Regional Policy Commissioner between 2004 and 2009.

Portugal: According to the Portuguese media, Prime Minister Pedro Passos Coelho is considering picking Carlos Moedas, the Secretary of State to the Prime Minister, as Portugal's nominee. However, Juncker is reportedly putting pressure for the choice to fall on Finance Minister Maria Luís Albuquerque instead. Therefore, Lisbon could potentially nominate a woman.

Romania: It appears Bucharest has re-nominated current Agriculture Commissioner Dacian Ciolos.

Spain: Former Agriculture Minister Miguel Arias Cañete is the only name doing the rounds in the Spanish media. No real alternatives have been floated.

Slovenia: No news out of Ljubljana, where the centre-left won early elections held a couple of weeks ago. A poll out today has found that a majority would like Janez Potočnik, the the incumbent Environment Commissioner, to stay on.

Sweden: When it comes to gender equality, you can usually rely on the Swedes. Although nothing has been confirmed, EurActiv reported recently that Cecilia Malmström, the current liberal Commissioner for Home Affairs, might be able to continue even if Sweden elects a centre-left government in September's general elections as looks likely.

Our quick headcount reveals that in addition to Vera Jourova from the Czech Republic, we anticipate Juncker can potentially count on another five women (from Italy, Belgium, Portugal, Poland and Sweden) which would only put him on six - still well short of the target. Possibly MEPs could accept a lower number if a woman were also appointed as President of the European Council but not this low. 

If the European Parliament were to follow through on its threat to veto the entire Commission it would set up an unprecedented row with member states, some of whom would have to back down over their preferred choice of Commissioner (although the UK would probably be safe given the appointment of Baroness Ashton to the current Commission).

Normally when the EP generates these kinds of threats and ultimatums (like over the MFF last year) some kind of backroom deal is usually stitched up allowing everyone to save face but it is increasingly hard to see where Juncker will get enough woman from to placate the European Parliament.

Lib Dem MEPs vote in favour of triggering the UK's referendum lock?

So MEPs yesterday voted for a resolution to reject the recent deal struck by member states on the EU's long-term budget "in its current form". The motion included calls to scrap all national rebates, more flexibility between budget headings, direct EU taxes and a mandatory mid-term review conducted under QMV - i.e. member states would lose their vetoes. 

So how did UK MEPs vote? 

For differing reasons, the Conservatives, Labour and UKIP all voted against the resolution. The Tories and Labour accepted the spending limits agreed by member states while UKIP rejected them on the basis they are still too high. However, Lib Dem MEPs followed the ALDE whip and voted in favour of the resolution:


In their defence, they claimed that:

"Liberal Democrat MEPs today supported the size of the EU’s multi-annual financial framework deal reached by Member States last month. They also supported moves to renegotiate the shape of the budget to make it more flexible and focused on areas that will bring jobs and growth to the UK, such as investments in R&D, innovation and infrastructure."

They have a point. Increasing spending on R&D is laudable (we've also made this point repeatedly) and more flexibility to move cash around within the budget is clearly desirable. However, while Lib Dem MEPs may accept the size of the budget, it is slightly disingenuous to claim that they actively supported it because the motion did not explicitly state this, unlike a separate motion put forward by the ECR group. The EP's position on the size of the budget was left intentionally vague so that the motion could gain the support of a majority of MEPs, ranging from the centre-right EPP to the Green and far-left groups.

The motion also included calls for direct EU taxes and scrapping the UK rebate, despite Nick Clegg insisting that the coalition would "protect the British rebate in full". If Lib Dem MEPs agree then surely abstention would have been a better option, or alternatively tabling their own amendment. With UK public opinion (and Westminster) overwhelmingly united in favour of the budget cut prioritising internal ALDE politics could backfire on them.

Fascinatingly, if successful, the demand for a mid-term revision of the MFF under QMV could trigger a referendum. The UK's European Union Act of 2011 contains a 'referendum lock' if certain areas of policy move from unanimity to QMV. This includes Article 312(2) TFEU, i.e. the passerelle or 'ratchet clause' - which is explicitly referenced in the motion.

While we don't expect member states to agree to the revision, we wonder if Lib Dem MEPs were aware of the possible implications of their vote?

The EU budget veto threat festival kicks off again

Remember our EU budget 'veto team'? Well, the next European Council summit - entirely devoted to negotiations over the 2014-2020 EU budget - is only one week away, and the sequence of veto threats may have just begun all over again.

Guess who fired the starting gun (clue: not David Cameron)? It was Italy's outgoing Prime Minister Mario Monti. He told a conference in Brussels yesterday,

“There would be no coherence between what everyone is saying about the need for growth and the adoption of an inadequate [long-term EU] budget…The orgy of cuts that certain countries want to apply is inconsistent. Therefore, I’m not sure that it would be irresponsible for a country to disagree with a budget proposal which is inadequate.” 

That is, a veto threat, Monti-style. This has just started, so keep following us on Twitter @OpenEurope for real-time updates.

Meet the EU budget 'veto team'

This EU budget stuff can come across as pretty dull and confusing. To lighten things up a bit, we will turn to the universal language of football. So meet the EU budget 'Veto Team' - the eleven EU leaders that so far have threatened to veto the EU budget unless they get a better deal. Needless to say, given that this is its first outing, the eleven-man team is far from a cohesive unit - with lots of big egos and players who play for themselves.

(Click to enlarge the picture)

CF: David Cameron leads the line, ready to strike and seen as the most likely to pull the trigger on any veto.

RW: Swedish Prime Minister Fredrik Reinfeldt at right winger hugging the line (sticking to his guns), happy to put in a shift for the team and more likely to offer an assist/support for Cameron than to deliver the final blow himself.

AM: French President François Hollande is the mercurial trickster playing between the lines but not quite sure of his role or his aims. Ultimately a selfish player (as are many of the others) but whose own personal gain could ultimately be detrimental to the rest of the team.

DM: Italian Prime Minister Mario Monti is playing the stoic holding role, refusing to budge and occasionally gesticulating wildly at the referee, although never actually getting into the danger zone at the forefront of the action. More likely to break up play and provide a stumbling block than deliver a knockout blow to the opposition. Unlike the rest of the team, not here on merit (elected) but parachuted in by the powers above.

LW: Portuguese Prime Minister Pedro Passos Coelho takes on the Cristiano Ronaldo role as a marauding left winger and not just because of the nationality. His red line that Herman Van Rompuy's proposal is unacceptable makes him more of a threat than many expected. Under pressure to perform from his home fans (electorate) he needs to put in a big showing – the question remains though whether he will rise to the challenge or crumble under the pressure.

MC: Dutch Prime Minister Mark Rutte is playing the 'box-to-box midfielder' role, akin to the days of Johan Cruyff's 'total football'. Usually more inclined to side with Germany (the opposition), Rutte finds himself dragged end-to-end with action not quite sure where he should be or where he is best suited. One things for sure, his hometown team (the VVD party) would love to see him score.

LB: Belgian Prime Minister Elio Di Rupo, naturally inclined to the left, find himself at left back. His demands are relatively minor and he’s not a regular in this team (usually part of the core EU group whose views align closely). He’ll put up a fight for a bit but he’s not a star player in this game.

CB: The towering centre-back, Danish Prime Minister Helle Thorning-Schmidt provides a solid spine to the team. Not one of the more flashy players but they know their job and what they want out of it (a clean sheet). Unlikely to score (pull the veto) but will definitely provide a blocker against any increases in the budget.

CB: Austrian Chancellor Werner Faymann is another unfamiliar member of the team. Stuck in at centre back because of its experience in the eurozone crisis and playing a key blocking role in minimising the liabilities. Unfortunately, his aims are different in this game and, as with Hollande, he may end up scoring an own goal (getting more spending in the budget).

RB: Romanian President Traian Basescu, at right back, is there as a late replacement and now a token entry. The previous incumbent (Romanian Prime Minister Victor Ponta) looked set for an interesting game, but after the substitution this role is unlikely to provide much action.

GK: Latvian Prime Minister Valdis Dombrovskis is in goal because, well, the smallest kid always gets stuck with the worst job.
 

The long queue of potential 'EU budget vetoes': Who will join next?

Update 21 November, 16:15

Portugal has stepped up its rhetoric by a notch, and has now joined the group of countries that have explicitly threatened to use their veto. Portuguese Prime Minister Pedro Passos Coelho told MPs, "The proposal that has been tabled [by European Council President Herman Van Rompuy] is completely unacceptable for Portugal. By saying this, I mean that I would block a decision [by EU heads of state and government] that had this proposal as its final result."

In practice, this means that one third of EU member states have so far explicitly said that they are ready to veto the next long-term EU budget.  

Update 21 November, 10:40

Another day, another EU budget veto threat - this time from Latvia. Prime Minister Valdis Dombrovskis has said that his country is prepared to veto the 2014-2020 EU budget unless it gets a better deal on agricultural subsidies and cohesion policy.

Update 20 November, 17:00

Italy has today officially moved to the group of countries that have explicitly threatened to veto the 2014-2020 EU budget. Italian Europe Minister Enzo Moavero Milanesi said Italy will be "ready to use its veto" if it considers that the next long-term EU budget is "harmful for the country and burdensome for the Italian taxpayer."

Also, Portugal added its voice to the group of member states that consider Van Rompuy's proposal "unacceptable", but stopped short of threatening a veto. 
 
And here's our original blog post,

You will have read a slew of stories about how the UK is threatening to veto the EU leaders' budget talks later this week and the various terrible consequences that will follow should it do so. The FT has a story today that EU diplomats are working to "circumvent" the UK's veto by moving to annual Qualified Majority Voting, which actually only means that they're working on a scenario for a roll-over, should a deal fail to be struck (we've already looked at that scenario in detail here) so don't get too excited.    
As some European sources have put it, a "miracle" would be needed to strike a deal on the 2014-2020 EU budget when EU leaders meet in Brussels on Thursday and Friday. And the UK is certainly not alone when it comes to putting its veto on the table. In fact, veto threats are flying around all over the place - we count seven veto threats in total. Here is a list of EU member states who have either explicitly threatened to veto the next long-term EU budget or said they are unhappy with the compromise currently on the table - which means they could wield their veto unless something changes.

UK: Has threatened to veto any proposal which does not involve, at worst, a freeze based on 2011 payments.

Denmark: Has warned it will use its veto unless it gets a rebate worth 1 billion DKK (slightly over £100 million) from the 2014-2020 EU budget.

France: Has said the compromise proposal put forward by European Council President Herman Van Rompuy "is not a basis for negotiations". Paris wants EU farm subsidies to be kept at least at 2013 levels, and said it will threaten to veto the talks should CAP spending be radically changed.

Sweden: Has hinted at using the veto in the past and believes Van Rompuy's proposal still does not go far enough. According to Swedish Europe Minister Birgitta Ohlsson, what is missing is "a clear model for reducing agriculture subsidies".

Austria: Has threatened to veto the long-term EU budget unless two conditions are satisfied. Firstly, Austria wants to continue receiving its 'rebate on the UK rebate' over the next seven-year EU budget period. Secondly, the Austrian government is opposed to cutting the rural development component of the CAP.

The Netherlands: Does not want to see the annual or long-term EU budget increase above inflation, and explicitly said it will use its veto if necessary.

Romania: Has warned it could use its veto, calling Van Rompuy's proposed cuts to farm subsidies and regional funds "unacceptable".

Italy: Has not threatened to veto the talks but dismissed Van Rompuy's compromise, saying it is "not a positive contribution" to the negotiations. Italy wants to see its net contribution to the EU budget cut, the reason being that its GDP per capita has now slipped slightly below the EU-27 average. Rome also opposes cuts to farm subsidies and cohesion policy.

Spain: Has rejected Van Rompuy's proposal as "unacceptable". Reports have suggested that, under the proposal, Spain risks losing up to €20 billion in total over seven years in both farm subsidies and cohesion funds. However, Madrid is still to drop the "V" word.

Poland: Has not explicitly threatened to wield its veto, but is clearly not happy with Van Rompuy's proposed cuts to EU regional spending. Poland is trying to muster support from other net recipients from the EU budget, such as Portugal - the so-called 'Friends of cohesion group'.

So, it looks like circumventing a veto on the 2014-2020 EU budget would mean much more than circumventing the UK.

Cameron’s EU budget veto is a powerful tool for change

Over on the Telegraph blog, we argue:

Labour has joined the battle over the EU’s next long-term budget. The budget, to run between 2014 and 2020, will be discussed at an EU summit on 22 and 23 November. David Cameron wants a “real terms freeze” (based on the cash that was paid out from the 2011 EU budget), Labour says he should go for a “real terms cut”, though it is not clear how that is defined. A motion will be debated on Wednesday in Parliament calling for a cut in the EU budget. It’s not binding, but if Labour MPs side with Tory backbenchers it could be embarrassing for the Government. The discussion is generally confused. 

Cameron is running short of allies in Europe for his real terms freeze – the Swedes and the Dutch are still with him. Cameron looks unlikely to back down, however, and it may come to him vetoing it. So what happens if Cameron vetoes the EU budget? The spin from some is that the talks move to QMV, and Cameron is toast anyway.

It’s a bit more complicated than this, however. If there’s no agreement by the end of 2013, there are two, broad possible outcomes:

Carry over the current EU budget:  If EU leaders fail to reach a deal before the end of next year, the 2013 budget structure is carried over, adjusted to inflation (the standard GDP deflator of 2pc). How the cash is allocated is decided by Qualified Majority Vote (QMV) rather than unanimity, circumventing the UK’s veto.

The point is that the UK uses 2011 payments as its baseline figure and this is likely to be considerably lower than the budget allocations or the overall ceiling for subsequent years. The combination of QMV and switching baseline scenario could therefore substantially increase the size of the EU budget, compared to both Cameron’s proposal and the various compromise deals floating around.

Tear up the budget completely and create a new proposal: The European Parliament could go rogue, tearing up the so-called “inter-institutional agreement” between itself and EU ministers, meaning that each year the Commission has to table a completely new proposal for the annual budgets although without any spending ceilings. These, also, will be subject to QMV.

So is Cameron’s veto pointless? Not at all. For a range of reasons, many EU countries would will desperately want to avoid this minefield:

• Under a “no deal” scenario, EU leaders will need to decide some 55 separate EU spending areas, through individual QMV decisions, all subject to a cobweb of disagreements. This would be hugely time-consuming.

• The powerful block of new member states would lose out massively from the previous year’s deal being carried over, since under the new budget period they are expected to receive proportionately more money. They will badly want a new deal.

• In addition, the UK isn’t the only country with a “rebate”. But unlike the UK’s rebate, all other budget corrections – including the Swedish and Dutch rebate on the UK’s rebate (yes, there’s such a thing) – will expire in 2013, while the UK rebate remains constant (courtesy of Margaret Thatcher). Many net contributors are therefore keen on a new deal.

• For its part, it would take a lot of nerve for the European Parliament – which is already struggling with democratic legitimacy – to tear up the inter-institutional agreement altogether (I dare them).

There’s another twist involving the UK’s rebate which may not make an ad hoc deal appear that bad for the UK either. Even under  Cameron’s “freeze”, the UK’s net contribution could go up by between €1bn (2.2pc) and €2.4bn (5.4pc) over seven years, as more cash would go to new member states not covered by the UK rebate. Under a “no deal” this effect may be mitigated to a significant extent, meaning the UK’s net contribution wouldn’t be greatly affected (for the detail, see here).

Cameron could have done some other things – including repatriating structural funds for richer member states – but at least he’s trying to achieve some change and do the right thing.  Ultimately, this episode shows just how politically and economically unsustainable the EU budget is. It needs to be one of the first items up for re-negotiation as the UK seeks new EU membership terms.

How to make Cameron's EU veto threat actually count

On the Telegraph blog, we argue,

Europe has just sailed up the agenda at the Tory party conference, with Theresa May suggesting curbs on EU immigration and David Cameron hinting at another EU veto. Speaking of the ongoing talks over the EU’s long-term budget (2014-2020), Cameron said: "If it comes to saying no to a deal that isn't right for Britain, I'll say no." 

The problem for Cameron is that unless anything changes, the EU budget talks will almost certainly generate a bad deal for Britain, both in terms of content and cash contribution. 

For various reasons, EU budget talks are always biased towards the status quo, as special interests – such as the farming lobby – block meaningful reform through individual member states’ vetoes. Therefore, on its current path, the UK will keep its rebate from the EU budget, but the EU’s odd spending priorities will remain. This means that around a third of the EU budget will continue to go towards subsidising landowners – irrespective of whether they’re engaged in any meaningful economic activity. 

Another large portion – the so-called structural funds – will continue to see cash pointlessly recycled between some of Europe’s richer regions and countries and spent on projects with little, no or negative impact (though another chunk goes to Europe’s genuinely poor regions). 

The EU’s new long term budget could account for roughly €130-140 billion a year – not a huge amount in the grand scheme of things – but with Europe facing a solvency, competitiveness and banking crisis all at once, this money could still make a big difference if targeted properly. It’s therefore absolutely maddening that the EU budget remains unreformed on its content. 

At the same time, even if the UK manages to get what it’s pushing for – an inflation-adjusted cash freeze (based on 2011 payment levels) – the UK’s net contribution will still increase, since more money will (rightly) go to newer member states which aren’t covered by the UK’s rebate. In turn, any actual increase – and it’s heading in that direction in the ongoing EU talks – will naturally mean an even larger net contribution for the UK. 

 Therefore, Cameron is a very unenviable situation: even if he gets what he wants in negotiations, UK taxpayers will still be forced to cough up more cash to pay for the EU (in net terms). Clearly, this could be politically damaging. 

So how can he get out of this? 

As I’ve argued before, he should instead use the veto to seek the repatriation of the structural funds for richer member states (with a GDP of 90 per cent or above the EU average). This would reduce the UK’s net contribution substantially – possibly by several billions over next budget framework. At the same time, the UK would remain committed to support Europe’s poorest, as all post-communist member states that joined in 2004 and 2007 would do better from the funds (for how to deal with Italy, Spain and Greece – the only countries in the EU actually losing out under this proposal – see here). 

UK regions and urban areas also need far better tailored and targeted cash than what is offered by EU funding. In addition, as this was originally a Labour policy, it has the potential to gain cross-party support at home.

Now, as ever in EU politics, this isn’t uncomplicated. If Cameron insists on the veto, it won’t necessarily stop the process. At worst, it could lead to an ad hoc deal decided on a year-by-year basis through Qualified Majority Voting. But most member states have a huge incentive to avoid this happening. It would be extremely messy and most of them would lose out substantially compared to a new deal. 

Therefore, targeting the structural funds for reform remains the best option for Cameron – by far. Beyond party politics, it’s the right policy to pursue, as it would benefit both the UK and Europe – and finally inject some common economic sense into the EU budget.

Cameron needs credibility on Europe – here are two things he can do immediately to get it

Over on Conservative Home, we argue, 

The Coalition has already done some good work on the EU, the ‘referendum lock’ and the recently launched ‘audit’ of the EU’s influence on the UK to name two. However, the constraints of coalition government have tested the loyalties of Conservative MPs, party members and potential voters who wish to see substantial changes to the UK’s EU membership terms. As a result, Europe could damage the electoral coalition the Conservatives need to muster in order to win an outright victory. This is borne out by recent polling by Lord Ashcroft, which shows that 10% of Conservative voters say they would now vote for UKIP. Of course this may not happen, those who say they will vote UKIP may, when it comes to it, vote to keep the Labour party out. But it would be foolish to advocate complacency, not least as this also links to general trust in politicians. So what can be done?

Some talk of deals with UKIP, some talk of promises of a referendum, some talk of the need for a better defined Conservative vision for a post-2015 Government. These proposals all have specific problems and one major problem: Credibility. Would anyone (including in the first instance UKIP-inclined voters) believe them? Increasingly, the answer is no.

For this group of the electorate and party base, the Conservatives’ credibility on Europe has been hit by a series of forced and unforced errors. Whether perceived or real, the overselling of the Lisbon Treaty ‘cast iron’ guarantee, the revelations that before the election David Cameron’s policies may have been framed with Coalition in mind, the CCHQ prohibition on candidates campaigning on Europe, the opting in to EU crime and policing laws, lecturing the French and Germans on the need to create a Fiscal Union and now Cameron ruling out forever leaving the EU, all chip away at his credibility. In short, Cameron could promise to spend every waking moment committed to achieving new, improved EU membership terms, jump over the EU parapet, look back, and see his troops have opted to stay in the trenches.

Fortunately for David Cameron he has two great opportunities to address these concerns and reassure the electorate he means business, two opportunities where he can either act unilaterally or use a veto. Importantly both these opportunities come before the next election.

Firstly, David Cameron should use a quirk of the Lisbon Treaty to activate the 2014 block opt-out and repatriate around 130 EU crime and policing laws, rather than allowing them to fall under the jurisdiction of the European Court of Justice. He should then avoid squandering this gain by resisting pressure from within the coalition to opt back into them piecemeal. He should instead argue for either a better deal, under which the European Court has no jurisdiction in the UK over criminal law, or stay outside permanently.

Secondly, the UK should demand root and branch reform of EU regional policy, repatriating responsibility for regional funding to the UK and other richer member states. Limiting EU-managed regional funds to poorer countries would mean that 23 out of 27 EU countries pay less into the EU budget than at present, saving the UK £4bn net over seven years (in addition to the £8.7bn it currently gets back through the EU regional funds). This is achievable but Cameron must make it clear that he is prepared to veto the next multi-year EU budget, currently up for negotiation, in order to make this demand more credible.

These two measures would achieve several objectives simultaneously – a reduced EU budget contribution, repatriation of two areas of power from Brussels and limiting the powers of the EU judges – an early opportunity to get some ‘balls in the net’. If Cameron takes these two opportunities, this would be a substantial down payment for future electoral credibility which he will need when he promises a wider renegotiation with the EU. Without it, any future manifesto promise may be skilfully crafted but will not sway many voters’ minds.

 

Cameron should veto the EU budget unless he gets a better deal

On the Telegraph blog, we argue:

At a meeting of Europe ministers today, the UK government is set to be outvoted on the size of the EU’s 2013 budget. Having pushed for a freeze without a last-minute deal, Britain will be forced to accept a 2.8 per cent increase. This is a compromise position that gives scant consolation to UK taxpayers who will have to fork out an additional £350 million for no good reason whatsoever. Unbelievably, the Commission and some member states were pushing for a 6.8 per cent increase.

Decisions on the annual budget are decided by so-called qualified majority voting system (QMV) with the European Parliament also having to give its assent. This is the issue on which the UK is set to get stuffed this week. However, each member state has a veto over the EU’s long-term budget – known in Brussels speak as a Multiannual Framework (MFF) – which usually covers a seven-year period.  This underlines how incredibly important it is for the UK government to utilise its veto to get the EU’s long-term budget right.
Unfortunately, in talks over the EU's long-term budget (set to run between 2014 and 2020) – also up for negotiation at the moment – the UK is merely pushing for a freeze to overall spending. While this strategy has some merits, it won’t achieve anything above and beyond what could be achieved by simply vetoing the MFF. This is because under EU rules, if a new deal over the MFF can’t be reached, the previous year’s budget is carried over, adjusted to inflation – exactly the real terms freeze that the government is currently pushing for. This is not a shrewd negotiating strategy.

So what should the UK government do instead?

There is no shortage of EU spending areas to reform. For example, it’s madness that, as Europe grapples with a solvency, competitiveness and banking crisis – all at once – around one-third of the EU budget still goes towards subsidising landowners, irrespective of whether they’re engaged in any meaningful economic activity.

But the UK government would secure a hugely disproportionate benefit by one simple move: repatriating the EU’s so-called structural funds back to Britain and other wealthy states. The structural funds are meant to help poorer regions catch up with richer ones, but in reality a large portion of the money is merely being recycled between some of Europe’s richer regions and countries, and spent on projects with little, no or negative comparable impact. Of the 37 regions under the EU’s classification system, 35 pay more in to the system than what they get back. This means that many disadvantaged UK regions – such as the West Midlands and Northern Ireland – end up as net contributors.

As argued for by the previous Labour government, and as recommended by the Commons Local Government Select Committee (alas, only from 2020), the UK should push for the repatriation of these funds for member states with a GDP of 90 per cent or above the EU average. This would achieve the following:
UK taxpayers could save almost £13 billion gross, and £4 billion net over seven years and the overall size of the EU budget is reduced by 15 per cent

-23 out of 27 EU member states would pay less into the EU budget, with France gaining the most (around €12 billion over seven years)
-All post-communist member states that joined in 2004 and 2007 would do better from the funds
-By streamlining and slimming down the funds, they could become far better tailored around regions’ individual needs
-The government, and Mr Cameron in particular, would get instant credibility on Europe

Those countries that would lose out – Spain, Italy and Greece –need a different kind of financial support to that currently is offered by the funds anyway. For example, 30 per cent of the funds in Spain still go towards roads and infrastructure – the opposite of what the country with its bust construction sector needs. This would be the best opportunity of putting this right.

In terms of a simple and easy to communicate policy proposal, this is an open goal. In terms of negotiation dynamics, despite it only ever being able to deliver a freeze, as opposed to an end to UK payments, Britain’s veto is still powerful. Not having a new MFF in place would be extremely messy and most member states, including the new ones that want a new deal to benefit from phased-in farm subsidies, have huge incentives to strike a new bargain. The UK will almost certainly get something substantial in return if it sticks to its guns.
Mr Cameron would waste a perfectly good EU veto – and a chance for a massive credibility boost on Europe – by letting this one slide.

A eurozone banking union will fundamentally change the rules of the game for Britain in Europe: Is Cameron ready to pull another veto?

Over on the Telegraph blog, we argue:

Talk of a banking union for the eurozone has become fashionable. Many, including the British government, see the idea as a way to provide some sort of backstop for the eurozone, where shaky banks remain a huge threat not only to the single currency, but also to the British economy.

Banking union, as a concept, has merits – it tries to deal with the ever elusive question: what happens when cross-border banks fail? But, viewed from London, a banking union is also political dynamite. It cuts to the heart of both a key national industry and Britain's future place in the EU as the eurozone integrates further.

There are only embryonic proposals on the table at the moment, and a lot is unclear. A banking union could involve a wind-down mechanism, resolution fund and deposit guarantee scheme – all on a cross-border basis. It could also take various different institutional shapes, putting the Commission, the ECB or national capitals respectively at the centre (expect turf battles). All of these vital decisions will take a lot of negotiation and time to sort out and may involve EU treaty changes – while there’s huge resistance in some member states, not least Germany. It may not be politically possible to achieve.

Regardless, the UK cannot take part in the banking union itself: politically, it would involve a massive transfer of powers to the EU, which no British government will go anywhere near. Economically it would be virtually impossible too, given the disproportional risk accounted for by the City of London, which neither side would be willing to accept. Instead, in a scenario reminiscent of David Cameron’s December veto, the question is whether London will simply nod through the changes (whether a Treaty change or not, the UK will have veto over at least some elements) or whether it will name a price for its approval.

George Osborne and No 10 have said they will seek safeguards to ensure that “British interests are secured and the single market is protected… anything affecting the single market should be agreed by all 27.” But is Cameron really willing to veto the same union that he is calling for?

Because if, according to UK wishes, a fully-fledged banking union indeed materialises, it’s very difficult to see how it would not cut right across the single market. The most obvious risk is over ‘location policy’ – whether in future a certain firm or financial activity must be supervised by eurozone authorities in order to do business there. This would essentially serve as a massive barrier to UK firms doing business in Europe – in an extreme case, the City of London would effectively become ‘offshore’ for the purposes of trade with euro countries.

But more probably, for a banking union based on cross-border liabilities to really work, it would need to be backed by perfectly harmonised regulations, to avoid a bank in one country essentially free-riding off the back of guarantees by taxpayers in another country. This is precisely why the Germans are so sceptical – without a single set of rules the banking union would spill over to fiscal union but without the corresponding central controls. Not only because backstopping banks is a big part of state liabilities, but also because banks flush with new eurozone-wide guarantees could lend to their domestic sovereigns at incredibly low rates, essentially providing artificial subsidies to states and removing market pressure for reform (sound familiar?). That would give rise to moral hazard of ridiculous proportions.

Instead, the eurozone will need a ‘single rulebook’ for banks, which may or may not be compatible with the current rules governing the single market in financial services. For example, to counter free-riding risks, individual countries could have no discretion whatsoever on capital requirements for banks. It would be a single target for all euro countries, with zero flexibility. This may not be a disaster for the UK – it could even be a benefit. But it could also go the other way, ending with an in-built eurozone majority voting to apply the single eurozone capital target for the EU as a whole, which could be substantially different to the needs of the UK. A eurozone banking union would also alter the basic relationship between the home and host countries of cross-border banks (i.e. subsidiaries), shifting the previous fragmentation from national borders, to the euro/non-euro divide.

Again, this may or may not be a problem for the UK, but the point is that inherent in the creation of a full-scale banking union is the fragmentation of the EU single market – which means that, if you’re sat in London, you should tread extremely carefully around the issue. A compromise may be possible (though it won’t be pretty) which would allow for the gap between the eurozone and the single market to remain narrow (we’ve suggested some potential compromises here). But the political dilemma for the UK government is clear: is it prepared to use another veto to block a banking union absent UK-specific safeguards – risking being perceived as hampering efforts to save the euro? Or will it simply nod through potentially game-changing proposals, risking the wrath of its backbenchers?

Reforming the EU budget: could the reform-minded states ask for a better opportunity?

Today we published our long anticipated report breaking down the EU budget line by line and putting together our alternative that would reduce spending by almost 30% - saving European taxpayers around €41bn annually - while focusing the spending far more effectively on boosting the jobs and growth that both the UK and Europe desperately need.

In the press release accompanying the report, we argue that:

“Given the economic climate in Europe, the UK has a golden opportunity to push for fundamental reform of the EU budget. However, the Coalition is selling itself short in on-going talks over the EU’s long-term budget, given that its primary objectives of freezing spending and defending the rebate could be achieved simply by wielding its veto.” 

In particular, we recommend that the UK and other reform-minded states ought to prioritise and target one key area of the EU budget that it could generate the most benefit compared to the political capital needed to reform it. It could put forward a strong economic case and also threaten to veto the EU budget unless this reform goes ahead. Clearly, the potential for the cleanest policy option would be to devolve regional policy back to member states with a GDP of 90% or above the EU average. As we have pointed out repeatedly, such a move would generate huge gains for Britain (including a net saving of around £4bn over seven years) and the EU as a whole, while also boosting the EU’s jobs and growth agenda at a time when Europe needs it the most.

As Andrea Leadsom MP, co-chair of the APPG on EU reform. told the Times (which trailed the report): “It is ridiculous that we should be handing over money, that they administer, convert to euros, decide what to do with, then hand back”. The report was also trailed in the Mail.

Here are the report’s key points:

• Due to its inflexible design and poorly targeted spending schemes, the EU budget is particularly ill-suited to deliver the jobs and growth that Europe needs. However, the window of opportunity for radically reforming the EU budget is swiftly closing. Before the end of the year, national governments could potentially conclude talks over the shape and size of the EU’s next long-term budget, locking in the overall spending priorities for the period between 2014 and 2020.

• Despite the austerity facing Europe, the European Commission has proposed a 6.8% increase in EU spending for 2013, while cutting only six out of almost 41,000 EU jobs. For the next long-term EU budget post-2014, the Commission has proposed to increase the budget by yet another 5%, while only offering minor reforms on substance. 

• Based on a line-by-line analysis of the EU’s 2012 budget, Open Europe has set out an alternative budget that would reduce spending by almost 30% - saving European taxpayers around €41bn annually - while focusing the spending far more effectively on boosting jobs and growth. The UK would reduce its annual gross contribution to the EU budget by almost €5.7bn (£4.6) under such a scheme. Areas in the current budget where both savings and better targeted spending could be achieved include: 

1. Focusing the EU’s structural funds on less wealthy member states and stopping the recycling exercise whereby richer member states subsidise each other’s regional development policies would save just over €20bn.
2. Over one quarter of the EU budget is spent on subsidies to farmers and landowners, irrespective of whether they are engaged in any meaningful economic activity. Slimming down and re-focusing the CAP would bolster both rural job creation and the delivery of environmental benefits, while also achieving a saving of almost €24bn.
3. The cost of EU quangos to European taxpayers has increased by 33% in two years. Simply scrapping those that duplicate others’ work or add no value, would save €431m.
4. Scrapping the European Parliament’s additional seat in Strasbourg could save €180m. Last year, the Parliament issued tenders with a combined value of over €62.4m related to the maintenance of the Strasbourg seat – despite the building standing empty 317 days a year.
5. The cost of running the European Parliament has increased by 36% since 2005, and totals €1.7bn, while expenditure on MEPs’ salaries and allowances has increased by 77.5%, and cost €190m in 2012, excluding pensions and transitional allowances. This is largely due to reforms in 2009 which standardised MEPs' pay across all member states, which had been hugely divergent, and shifted the cost from member states to the EU budget. 
6. Also, since 2005, spending on Commission officials' pensions has increased by 48.6%, amounting to €1.3bn today, while expenditure on Commission staff salaries has risen by 17.9% and now totals €2.1bn, although this is down from a high of €2.2bn in 2010.
7. Since 2005, EU spending on ‘Education and Culture’ has risen by 61%, now standing at €1.54bn. The DG for Education and Culture employs 487 staff – more than the DG for Internal Market and Services.
8. Meanwhile, despite the importance of trade and the single market, only 2.6% of the EU budget is explicitly dedicated to facilitating these policies. Aside from the EU's six highly specialised joint undertakings, general R&D – the one area where the EU budget really can add value – only accounts for around 4.5% of EU spending in 2012. This amount should be radically increased.

• To mirror tough economic decisions in member states, there are also substantial savings to be had in a range of other areas, including administration, communications, justice & home affairs and foreign policy. 

• In the on-going negotiations over the next long-term budget, the UK is pushing for a budget freeze and seeking to defend its rebate. While this strategy has merits, it will also not achieve anything more than if the UK simply chose to veto the proposal for the next long-term budget, as in the absence of an agreement, the status quo would effectively prevail. The UK must set the bar higher and push for, at the very least, the devolution of the structural funds back to richer member states, which would be a win-win for the UK and Europe. If this is not forthcoming, the UK should be prepared to veto the budget. 

We hope that the report will stir things up in Whitehall in the on-going negotiations on both the EU’s next annual budget and the next long term, seven-year financial framework which will largely lock in EU spending until 2020. Though it won't be easy (yes, we know about every single perceived and real political obstacle to EU budget reform), the UK potentially has a number of allies if it plays its diplomatic cards right, ranging from the new member states (with the right pitch) who stand to gain substantially under the proposals, to Germany, where both government and opposition politicians have been increasingly critical (see here and here) about the current EU budget.

It's a matter of just doing it.

What do a British Conservative PM and a French Socialist President have in common?

Over on the Telegraph blog, we note:

David Cameron will have his first face-to-face meeting with newly elected French President Francois Hollande today, at a G8 summit in the US. There has been some fuss about Cameron and Hollande not getting along. Cameron snubbed Hollande during a visit to London. And, most importantly, one is a French Socialist, the other a British Conservative. They must be each other’s diametrical opposite, surely?
Well, judging from some of their remarks and actions over the last year, if one didn’t know any better one would think they actually have quite a bit in common:

Both are trying to cut deficits: Yes, despite all the anti-austerity rhetoric, Hollande is trying cut spending too (as we’ve noted, the difference between the economic plans of Hollande and the ousted Sarkozy was paper thin). As his new economy minister Pierre Moscovici put it, “Hollande has always said that we should tackle state debt and reduce deficits”. Hollande wants to achieve a ‘balanced budget’ by 2017, Cameron wants to eliminate the UK’s spending deficit by 2015, albeit both are likely to fail.

Both have threatened to veto an EU treaty: In December, Cameron vetoed an EU Treaty change to impose greater fiscal discipline in the Eurozone. Equally, Hollande has implicitly threatened to veto the free standing ‘fiscal treaty’ (itself a result of Cameron’s veto), unless a clause on various fiscal stimulus measures is added. The rationale in each case is of course different but both have clashed with Germany’s view of the solution to the crisis.

Both have called for the ECB to become the euro’s lender of last resort: Causing half the German population to choke on their morning pretzels, Cameron and Hollande have both called on the ECB to do far more to “share the burden” of the Eurozone crisis through monetary activism, which probably means the ECB buying hundreds of billions of government bonds (which Cameron has endorsed implicitly, Hollande explicitly).

Both have toyed with the idea of eurobonds: In the past, both have called for a discussion on the eurozone moving to full debt pooling via eurobonds. Cameron called for it again yesterday, while Hollande hasn’t mentioned the idea since August last year and seems to have backtracked somewhat (his ‘project bonds’ are something different).

Both leaders have cabinets with ministers who opposed the flagship Lisbon Treaty/European Constitution: Laurent Fabius, new Foreign Minister, campaigned successfully for a “no” vote to the European Constitution in in 2005, while his UK counterpart William Hague, and most of Cameron’s cabinet (Ken Clarke excepted) opposed both the European Constitution and its successor the Lisbon Treaty.

So what’s my point? Of course, there are a whole range of disagreements between the two leaders. But two observations: first, the ‘austerity vs. growth’ debate is fundamentally false – even the proclaimed anti-austerity champion realises that public spending needs to be cut (at least in theory), while everyone is in favour of ‘growth’. The debate is on how to get there. Secondly, the line between the alleged ‘Eurosceptic’ and the alleged ‘pro-European’ suddenly becomes awfully blurred (who’s who again?) as both, obviously to different degrees, have problems with the status quo in the EU/Eurozone.

Bends assumptions doesn’t it?

Will Poland become the new North Korea of Europe?

This question can of course be filed under John Rentoul’s ‘Questions to which the answer is No’ category, but there is a significant chance that Poland will be the only EU member state to veto a new EU deal on climate change later today, meaning that at the very least we can expect Europe-wide condemnation and statements along the lines of Poland risking becoming permanently “isolated” right? After all, this was largely the immediate reaction in the European and UK press to David Cameron’s veto over embedding rules on budgetary discipline for eurozone members within the EU Treaties (see our response here), after he claimed such a move was not in the UK's national interest.

We doubt it though.

Some quick background: at today’s meeting of EU environmental ministers, it will be decided whether to adopt the EU’s 2050 low-carbon roadmap which seeks to set out a series of ‘milestones’ in terms of emissions reductions up to 2050. According to the roadmap, the most cost-efficient way of moving to a low-carbon economy is to achieve a 25% reduction by 2020, a 40% reduction by 2030, and finally a 80-95% reduction by 2050 (compared with 1990 levels). Agreeing on the roadmap is a first step to set legally binding emissions targets for the years beyond 2020.

The plan is backed by the Commission, the European Parliament and many member states (including the UK). However Poland has expressed strong concerns, indeed it already vetoed the 25% target once, back in June last year. Given that over 90% of Poland’s energy is generated from coal, this position is not surprising. Polish Environment Minister Marcin Korolec wrote to his counterparts warned against going beyond the agreed 20%, arguing that:

“There is no point whatsoever in gambling with the European economy’s future, introducing policies that might put our industries in jeopardy versus our competitors”

Ultimately is possible some sort of a deal could yet be thrashed out, but as yesterday’s Gazeta Wyborcza reported, Polish Government sources have made it clear they will not hesitate to block the deal unilaterally if is feels it is against its national interest. Unsurprisingly, many other member states and EU officials have not hidden their frustration with Poland's position.

There probably won't be any Auf Wiedersehen Polen headlines in the press, but this episode serves as a useful reminder to those who interpret UK-EU relations as a case of the latter being in permanent isolation. The truth is, as ever, far more complex.

Various EU member states maintain a special interest over economic sectors, industries and/or EU policy areas where they feel these are vital to their wider national interest. For example, the French have a dominant position in agriculture, the Spanish in fishing, the Germans in car manufacture and the UK in financial services, while Poland’s equivalent, naturally, is energy and environmental legislation.

Rather than trading in hyperboles, we should seek to establish a practical and intellectually consistent model for European cooperation, which can comfortably harbour such diverging interests.

Fifth time lucky?

Thanks to La Stampa Brussels correspondent Marco Zatterin's blog, we've just got hold of the fifth (maybe last) draft of the new 'fiscal treaty' on budgetary discipline, due to be discussed at today's meeting of EU leaders in Brussels.

As we are at the 'finishing touches' stage, changes from the previous version are getting more subtle and harder to spot. However, there are still a few interesting changes, including:

• In Article 3(1b), the so-called 'balanced budget rule' seems to have been further watered down. The wording "with the annual structural deficit not exceeding 0.5% of the GDP at market prices" has been replaced by "with a lower limit of a structural deficit of 0.5% of the GDP at market prices." We wonder how the markets will react: There's quite a substantial difference between imposing a maximum cap and a blander lower limit. We interpret this as meaning that the lowest the limit will be set for any country will be 0.5% (where as previously it could have been even stricter). Since the article still refers the the Stability and Growth pact we can infer that the new balanced budget targets will probably fall somewhere between 0.5% of GDP and 3% GDP (the deficit limit in the treaties);

• Non-euro countries will no longer need to implement at least part of the budgetary rules set out for eurozone countries in order to qualify for a place by the table at future summits of eurozone leaders. However, invites will still be allowed only for meetings which specifically focus on the implementation of the 'fiscal treaty'. In light of the recent agreement with the opposition Social Democrats, this is probably enough to have the Swedish government sign up. Poland's stance remains more uncertain, as the Polish government is clearly seeking greater participation;

• In a bid to win Denmark's support, the latest draft stipulates that fines imposed by the ECJ will be paid into the eurozone's permanent bailout fund, the ESM, only if they are imposed on eurozone countries. Otherwise, the money will be channeled into the EU's general budget;

• Regarding the fines, there's an aspect of the 'fiscal treaty' that is worth flagging up. Under the agreement, the ECJ will impose fines of 0.1% of GDP on countries that failed to comply with its previous ruling (on whether the countries have correctly incorporated the balanced budget rules into their national laws). This is a power that the ECJ seems to have under Article 260 of the Lisbon Treaty. The power to impose fines in such circumstances is therefore not a new power (and the ECJ still does not have the power to punish countries for missing their deficit targets). However, questions still remain over the eligibility of the ECJ to rule on whether the balanced budget rules have been correctly incorporated in the first place;

• Countries who want to join the agreement at a later stage will not have to wait for other Contracting Parties to "approve the application by common agreement." Under the latest draft, accession will become effective as soon as a country deposits the necessary instruments of accession - i.e. when it decides to ratify the 'fiscal treaty'.
  

Most changes aimed at convincing the remaining holdouts to sign up while keeping the tone of the treaty the same, but the 'lower limit' change does suggest a further watering down of the rules.

Update, 30/01/12, 1pm

Over on the Telegraph's live blog, it has been noted that this version of the pact does allow for some of the fines to go into the EU budget (as we also note above). The Telegraph suggests that this could benefit the UK, since budget surpluses are distributed to all member states. In theory this is true, but the fines which are paid into the EU budget will be those levied on non-eurozone countries. However, as we point out above, non-eurozone countries no longer need to incorporate any of the rules in order to be invited to attend future eurozone summits. In other words, non-euro countries would have no incentive to accept the rules set out in the 'fiscal treaty' before joining the single currency. What would they be fined for then? It seems very unlikely that non-eurozone countries would ever be fined and therefore that it could ever benefit the UK.

The Draft Euro Fiscal Pact: Pretty Bad News for Cameron...

As negotiations on the new European fiscal pact resume today, we have managed to get hold of a copy of the new draft prepared by European Council President Herman Van Rompuy's office, and it makes for interesting reading. First on the scene (at least amongst UK commentators), we'll give our take below:

On the Today Programme this morning, David Cameron said that countries which sign up to the euro+ fiscal pact,

"Shouldn't be doing things that are about the single market or about competitiveness, and we will be very clear that when it comes to that you cannot use the European institutions for those things because that would be wrong."

See here for the background to the legal scramble that has followed in the wake of Cameron's veto back in December of an EU 27 Treaty, with the crucial issue always being whether the EU institutions could be used by the 17+, despite Cameron's veto.

It's not entirely clear whether Cameron actually will try to block the use of the EU institutions in implementing and enforcing the fiscal pact, or merely insist on the EU institutions not being used for single market issues (which never was a concrete proposal but a general worry over the EU institutions, particularly the ECJ, being used to push a eurozone-specific agenda), but what's clear is that the EU institutions are all over this draft proposal.

The draft makes over 20 references to the EU institutions (seven to the ECJ and nine to the Commission).

Here are some of the most significant changes from the previous draft (we got hold of a copy of the revised draft, see here - changes from the previous version are highlighted):

• The scope of the agreement is expanded, as it now involves "an enhanced governance to foster fiscal discipline and deeper integration in the internal market as well as stronger growth, enhanced competitiveness and social cohesion". Note here the references to the single market and social cohesion - a concession to the French and pretty bad news for Cameron.
  

• The wording of Article 6 has changed, and now reads, "The Contracting Parties shall coordinate their national debt issuance," instead of "shall improve the reporting of their national debt issuance". This clearly gives the article more teeth.

• Countries subject to an excessive deficit procedure should submit their structural reforms plans "to the European Commission and the Council for 'endorsement'";

• The treaty would enter into force after fifteen (not nine) eurozone countries have ratified it.

Particularly interesting is the section on the role of the ECJ. In particular,

• Article 8 stipulates that the ECJ would have jurisdiction over any violation of the entire Title III, i.e. on all the provisions of the so-called "fiscal compact". In the previous draft, the ECJ only had a say on Article 3(2), i.e. on whether national governments have correctly transposed the balanced budget rule into their national legislation;

• Furthermore, according the revised text the Commission "may, on behalf of Contracting Parties, bring an action for an alleged infringement of Title III" before the ECJ.

Some subtle but significant changes, despite Commission claims that the previous agreement would form the basis for future discussions. There are three very interesting points from the UK's perspective:

1) EU institutions are playing a large role: In this draft the role of the ECJ and Commission is significantly expanded. Despite David Cameron's on-going insistence that EU institutions would not play a role in enforcing the rules of the treaty, Article 8 does just that. If the final version sticks to this definition it would likely be a defeat for Cameron, with his decision to veto being seen to have stopped very little (although this is far from finalised). On a side note this also seems to be a loss for France, since it had previously opposed such a wide role for the ECJ. Could a Franco-British alliance be in the offing at the next round of discussions? Something to watch for. For the record, we maintain that the use of the EU institutions in this way is a massive legal stretch (hello, EU law) - and that the aim of Cameron's veto was correct (it was an overall strategy and tactics that were lacking).

2) Focus on the internal market: Article 1 stipulates that the signatories of the treaty will work towards "deeper integration in the internal market". This is interesting given David Cameron's comment on the Today programme this morning, where he suggested that the treaty would not involve any discussions on the single market. Again the draft clearly directly contradicts this. The UK is understandably keen to avoid the new treaty along with its regular meetings becoming a talking shop for single market regulation which still has a huge impact on the UK economy.

3) Incorporate the treaty into EU law after five years: Lastly, Article 14 states -

"Within five years at most following the entry into force of this Treaty...an initiative shall be launched...with the aim of incorporating the substance of this Treaty into the legal framework of the European Union."

In other words, as demanded by the Commission and MEPs, it looks like that the new pact will have to be incorporated into the EU Treaties in the medium term, something which will require the UK's approval - suggesting that this argument will continue for sometime. Cameron's veto did not put the issue to bed by any stretch of the imagination.

At least two out of these three points almost directly contradicts what the UK government would have wanted, while the third one could potentially go either way. This is still a draft and much can change, but at the moment it has put the UK onto the back foot.

Further reading: "The ten lessons the UK government should draw from Cameron's EU veto".

Business support for Cameron's EU veto loud and clear

Much was said about business' opinion of Cameron's EU veto in the immediate aftermath of this month's summit but, now that the dust has settled, the picture is starting to become much clearer.

Today, in a letter to the FT, orchestrated by Open Europe, 20 leading business figures express their support for Cameron's veto and his willingness to "stand up for an outward-looking and competitive Britain."

Here it is in full:

Sir, It is impossible to know just how European politics or economics will develop at this juncture. However, since the UK prime minister’s recent veto of a new European Union treaty, one major point of principle is clear: Britain does not want, or intend, to be dragged deeper into a more centralised and over-regulated EU with ambitions to become a political union.We therefore believe that David Cameron deserves the full support of the business community. On this occasion, he was seeking safeguards for the financial sector, still one of Britain’s biggest industries, employing more than 1m people and contributing more than £50bn in tax revenues, but the principle is applicable to many other sectors of our economy, including manufacturing, which employs more than 2.5m people.

Those who would portray Mr Cameron’s use of the veto as bad for jobs and growth or as leaving the UK “isolated” are mistaken. The real threat to employment is the euro crisis, which was unaffected by his veto and which the recent summit did little to address. Britain has great potential to compete across the globe, if freed from badly targeted and trade-hampering government intrusions, whether from London or Brussels. Irrespective of the fate of the euro or the ability of weakened southern European economies to prosper under severe austerity programmes, it is most welcome that the prime minister has shown himself willing to stand up for an outward-looking and competitive Britain.

Rodney Leach,

Chairman, Open Europe

Anthony Bamford,

Chairman, JCB

John Barton,

Chairman, Brit Insurance Holdings

Roger Bootle,

Economist, Capital Economics

Mark Darell-Brown,

Managing Partner, Brown Vanneck

Douglas Graham,

Chairman, Express & Star Midland News

Gerard Griffin,

Portfolio Manager, GLG Partners

Robert Hiscox,

Chairman, Hiscox Underwriting

John Hoerner,

Former Chief Executive, Tesco Clothing

Geoffrey Howe,

Chairman, Jardine Lloyd Thompson

Luke Johnson,

Chairman, Risk Capital Partners

Tim Martin,

Chairman, JD Wetherspoon

Nigel McNair Scott,

Finance Director, Helical Bar

David Ord,

Managing Director, Bristol Port Company

Neil Record,

Executive Chairman, Record Currency Management

Nigel Rich,

Chairman, Segro

Hugh Sloane,

Co-founder, Sloane Robinson

Brian Williamson,

Simon Wolfson,

Chief Executive, Next

Signed in a personal capacity

Meanwhile, an IoD poll has revealed that 77% of its members agree with the PM’s use of the veto, with only 19% disagreeing. The survey found that 63% of IoD members would like to see the UK in a looser relationship with the EU, including 42% who would like to see a repatriation of some powers.

Add to this our recent poll of financial services managers, before the summit, which showed that 69% supported the introduction of a British veto on EU financial rules even if it reduced access to the Single Market, and the picture is one of widespread business support not only for Cameron's veto but for a more liberal and competitive Europe.

Ten myths about Cameron’s EU veto

Over on the Spectator's Coffee House blog, we set out ten myths about Cameron's veto. This is the post:

The EU veto that Cameron pulled in the early hours of Thursday morning has been widely misunderstood on all sides. Here are the ten most common myths:

1. Because of Cameron’s veto, Britain lost a seat at the negotiating table. Not true. The UK was never itself going to take part in the Merkozy pact (and potentially be subject to EU sanctions), and therefore not in the monthly, parallel EU meetings that will begin in January, either. Even if he had approved the Treaty changes, Cameron still would not have had a seat at the table. Wider political challenges aside, the veto didn’t change anything structurally in terms of UK influence.

2. Cameron’s veto created a two-tier Europe. A two-tier (or, rather, multi-tier) Europe was a consequence of the formation of the euro, which would inevitably force its members closer together. Cameron’s veto was a reflection of a multi-tier Europe, not the cause of it.

3. The UK is now completely isolated. Define isolated. Yes, Cameron expended a lot of political capital and frustrated many EU leaders — and he could have done some things differently, including sequenced his demands in a smarter way. But as Fraser pointed out earlier, the UK remains an open economy plugged into the global network. And given the state of the euro Britain is — as Terry Smith of brokerage firm Tullett Prebon told the BBC — ‘as isolated as someone left on the dock in Southampton as the Titanic sailed away.’

4. Cameron used his veto to protect a ‘tiny part of our economy’. This claim slipped into the BBC’s Stephanie Flanders’ reports on Friday and is incorrect. Financial services accounted for a £35bn trade surplus last year — one of the few sectors that generated a surplus, as well almost 2 million jobs and it contributed £54bn in taxes.

5. Merkel got what she wanted. This claim was also part of most broadcast reports and is equally untrue. Merkel got something, but, as Spiegel noted, she also ‘paid a high cost’ — compromising on ECJ budget powers and private sector involvement in future bailouts, for example — without achieving a lasting solution to the crisis. As yesterday’s FT Deutschland put it, ‘The next rescue summit is guaranteed to come.’

6. The UK is alone in expressing reservations about Merkozy’s deal. Cameron was clearly all alone on the veto, but others are far from enthusiastic about what’s on offer. Part of the deal hit the wall in the Finnish Parliament, while the Swedish opposition parties are opposed to Sweden signing up, meaning that the deal may not make it through the Riksdag. Håkan Juholt, the leader of the Social Democrats, said, ‘The Swedish people rejected the single currency in a referendum and we have to respect that. We have no intention of becoming members through the backdoor.’

7. The UK asked for ‘special exemptions’. Whether or not he asked for the right things, Cameron did not demand UK-specific ‘opt outs’ from regulations, but for the reinstatement of general vetoes over transfers of power to the EU’s financial supervisors and a guarantee that business and trading activities won’t be pushed inside the eurozone through regulation. The closest he got to an opt-out was a proposal to exempt certain types of businesses that only operate in one country from certain aspects of EU regulation.

8. Cameron went to Europe to protect greedy bankers. One of his demands was to be able to impose stricter rules on banks (capital requirements) in order to avoid future taxpayer-backed bailouts of bankers.

9. The 17+ can easily use the EU institutions to enforce their decisions, making Cameron’s veto pointless. ECJ case law clearly states that an ad hoc group of countries can use the EU institutions but only subject to an agreement by all EU member states sharing and paying for the institutions. This means that the UK still has a veto. Some EU leaders are now set on manipulating EU law to get around the UK veto (we’ve been here before). It’s not easy, but they may succeed. However, to criticise Cameron for this is to blame someone for losing in poker because the rules changed mid-way through the game.

To be fair, there have also been some misconceptions among those who would defend Cameron:

10. The veto was about blocking the financial transaction tax and specific financial regulations. Not quite. Cameron already had a separate veto over the FTT, and the Treaty changes were merely about tightening the eurozone’s budget rules (from which the UK already has an opt-out). The veto was always a lever to push for safeguards against the UK being sidelined on key economic issues (i.e. financial regulation) in future as the eurozone integrated further. It was not a protective measure in itself.

So leaving misconceptions and domestic politics aside, did Cameron ‘trip over his own red line’ by spending a veto without actually getting any specific safeguards in return? There is a risk. But the truth is that it all depends on what happens next. As dramatic as Cameron’s veto may seem now, I suspect it is merely one of many acts.