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Britain Isolated on Fiscal Union

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Britain was left standing alone as most of the 27-nation European Union agreed to consider a separate treaty with stricter budget rules for the euro zone. Citing a lack of concessions for its own economy, Britain held back from the move late Thursday at a summit meeting of EU leaders.

British Prime Minister David Cameron (Photo: AP)British Prime Minister David Cameron’s (left) negotiating tactics were termed “clumsy” by one senior EU diplomat, according to a Reuters report, and Lithuanian President Dalia Grybauskaite was even more outspoken, saying, “Not Europe, Brits divided. And they are outside of decision making. Europe is united.”

Chancellor Angela Merkel of Germany, however, held out hope that eventually Britain would reconsider and join the others.

All 17 members of the euro zone, as well as six countries that intend to join it, agreed to negotiate a new treaty separate from that of the EU that would have tougher rules for deficits and debts to help protect the euro zone from the debt crisis. Sweden, Hungary and the Czech Republic said they would have to consult with their parliaments before agreeing to the new treaty.

European Central Bank President Mario Draghi called the agreement a step forward, and was quoted saying, “It’s going to be the basis for a good fiscal compact and more discipline in economic policy in the euro area members. We came to conclusions that will have to be fleshed out more in the coming days.”

While Merkel and French President Nicolas Sarkozy had hoped that the entire EU would sign on to changes in the Lisbon treaty that would embed tighter budget and debt rules for the euro zone within the basic law for the region, Britain refused. It is not part of the euro zone.

Instead, Cameron insisted that guarantees were necessary to protect its financial services industry, which makes up about a tenth of the country’s economy. Sarkozy termed that demand unacceptable, and Cameron suggested that Britain may try to keep euro zone countries from using the European Commission (EC) and the European Court of Justice. He was quoted saying, “Clearly, the institutions of the European Union belong to the European Union; they belong to the 27.”

Britain’s position could lead to pressure for a vote in Britain to leave the EU, which it has been a part of since 1973. While there is pressure both within his party and outside it for such a vote, Cameron opposes the move, saying that it would be disastrous for the country’s interests.

While Sarkozy and Merkel intended to put together a treaty that would include euro zone countries and any others that wanted to be included—a group that could encompass 25 countries, with just Britain and possibly Hungary excluded—that did not happen.

Sarkozy said in the report, “This is a summit that will go down in history. We would have preferred a reform of the treaties among 27. That wasn’t possible given the position of our British friends. And so it will be through an intergovernmental treaty of 17, but open to others.”