After marathon talks, nations unveiled a deal to quell a debt crisis that is threatening the global economy. The summit organizers announced early Friday that they had agreed to try to forge a new pact centering on strict caps on government spending and borrowing to shore up the euro’s foundations.
But the veto by British Prime Minister David Cameron, a Conservative euro-skeptic who cherishes the pound and looks askance at a heavy European hand in British affairs, underscored his nation’s long unease with relinquishing national powers to the E.U. and left London isolated in a region now moving toward deeper integration without it. His move left Britain’s Guardian newspaper asking, “Will it be splendid isolation or miserable?”
At the same time, Cameron made life harder for a region desperately trying to unite behind a plan to subdue a debt crisis that is threatening the global economy. Without Britain on board, the 26 other E.U. nations face potentially complicated legal obstacles to meet one of the prime objectives of a new treaty: giving fresh powers to E.U. institutions to slap automatic penalties on governments that recklessly spend and borrow.
Leaders have tried, and repeatedly failed, to come up with grand plans to fix the region’s two-year-old debt crisis, allowing troubles that began in Greece to spread to much bigger economies such as Italy and Spain. Although the pact that was struck Friday, after an all-night round of negotiations, may be the most ambitious yet, it is also the most complicated, and it runs the risk of following the other attempted fixes in unraveling.
Countries must now attempt to squeeze the forging of a major European treaty — a process that in the past has taken many years — into the next three months. After that, the treaty will still need to be ratified by each nation, potentially requiring national referendums in countries such as Ireland where the outcome is far from clear.
Only Britain bluntly said no to a treaty. But Hungary, the Czech Republic and Sweden agreed to Friday’s deal at the last minute. Along with Denmark, Latvia, Poland, Lithuania, Romania and Bulgaria, they committed only to the possibility of taking part in a treaty after consulting with their national parliaments.
Perhaps the most candid assessment came from Polish Prime Minister Donald Tusk. When asked if the new pact would save the euro, he replied, “I’m not sure.”
Merkel rebuts British
Yet, the leaders of Germany and France, the anchors of the 17 nations that share the euro and the two largest economies in the European Union, hailed the accord as a “breakthrough” that would restore confidence in the euro. German Chancellor Angela Merkel declared herself indifferent to whether Britain signed or not.
A stoic Merkel said she had no intention of giving in to a British demand that many observers had expected she would ultimately accept to bring Cameron on board — a written promise that Britain would be free from potentially cumbersome European rules and regulations that could hamper London’s vast financial district. Instead, her message to the British was clear: If you want to be part of Europe, you must submit to its rules.
“I have achieved what I wanted to achieve,” Merkel said.
French President Nicolas Sarkozy was less delicate, suggesting that the rest of Europe was growing weary of Britain’s independent streak.
“You can’t on the one hand ask not to be in the euro and at the same time wish to be part of all the decisions affecting a currency you don’t want and often criticize,” he said.
Cameron, who is one of Europe’s leading advocates of austerity and has enacted historic cuts at home, is actually seen as more moderate on Europe than many fiercely anti-E.U. members of his Conservative Party.
But he came to Brussels boxed into a corner. In recent days, he had incurred the wrath of his party by suggesting that his primary consideration now should be helping his neighbors save the euro and that repatriating powers from Brussels, the region’s administrative capital, would be a non-starter.
Members of his party threatened to push for a national referendum on a new treaty if Cameron signed on, a vote that could have turned into a proxy on Britain’s continued membership in the E.U. But Cameron risked marginalizing Britain in Europe, potentially diminishing its voice on a range of issues from economics to foreign affairs.
Rodney Barker, professor emeritus of government at the London School of Economics, said Cameron was in a “precarious position.” While trying to placate his party’s right wing, which wants less involvement in Europe, Cameron also risked making Britain irrelevant with its neighbors.
“You can’t leave a club then complain you’re not involved in its meetings,” Barker said.
Faced with both praise and criticism at home, Cameron on Friday appeared unbowed.
“It was the right thing for Britain,” he said. “It was the tough decision, but the right one.”
Despite all the focus on the summit, Friday’s agreement was aimed at fixing the root causes of the crisis and contained only modest steps to address the immediate problems facing Europe: spiraling borrowing costs for countries that could otherwise slowly get their ledger sheets in order.
The 26 nations did agree to the “aim” of increasing the amount of financial aid available to troubled nations in the region, pledging an additional $268 billion to the International Monetary Fund. They also agreed to move up the establishment of a $670 billion European bailout fund by one year, while keeping in place a $590 billion temporary fund, effectively increasing the total amount.
Addressing the problem of high borrowing rates in countries such as Italy, though, may require greater intervention from the European Central Bank, which could print money to lend to countries at affordable rates, or from Germany, which could allow countries to borrow money with guarantees from the full euro zone.
Merkel has previously hinted that she might accept euro bonds — regionwide instruments like U.S. Treasurys that could require German taxpayers to back up the debts of Greeks and Italians — but only as long as other countries bind themselves to deep fiscal overhauls.
Despite the pact struck Friday, Merkel’s reluctance forced summit leaders to remove a reference to euro bonds from a draft communique of an agreement.
Her declaration that she found the pact acceptable cracked the door for Germany to do more to combat the crisis. But it remained unclear on what time frame that would happen, if it happens at all.
Correspondents Michael Birnbaum in Berlin and Karla Adam in London contributed to this report.