For the first time in history, Britain has vetoed a new EU treaty. The purpose of the treaty was to impose tough new limits on budget deficits of member states. David Cameron argues that the new treaty would open the door to new financial regulations that would disadvantage Britain. His move is likely to prove popular in the UK, where a bare majority of voters with an opinion on the question favors leaving the EU altogether. The Europhiles at The Economist, however, are unimpressed. The remaining EU members appear headed for a new treaty technically outside the auspices of the European Union (however, there are obstacles, as Britain will likely insist that no EU resources be used for the new institutions).
From a strictly economic point of view, however, it was always unclear why Britain and other non-eurozone member states needed to be part of the treaty. Large budget deficits in Britain no more threaten the euro’s stability than do large budget deficits in Sweden or the United States. The European Central Bank has no reason to monetize British debt, and while British default – a highly unlikely prospect to begin with – would surely harm the European financial system, the ECB presumably would intervene in such an event by supporting financial institutions within Eurozone countries. As ever, the construction of new economic-policy powers for EU institutions is about politics: building a political-economic bloc with stronger economic bargaining power. Pay attention to Sarkozy.