How Brussels went wrong for Sarkozy and Merkel too

IN THE TORRENT of comment that has followed David Cameron’s shock decision to veto the Merkozy treaty in the small hours of last Friday, one thing stands out. We know what went wrong, but not why it did.

That things did not go to plan is undeniable, whatever No 10 may say. Writing in The Sunday Telegraph, the Foreign Secretary, William Hague, implicitly admitted as much when he said he and the Prime Minister had gone to Brussels looking for an agreement not a row.

In the event, when he heard what France and Germany were demanding, the PM must have known that Parliament, let alone the country voting in a referendum, would never accept the loss of national sovereignty involved. Merkel and Sarkozy really did not leave him any option but to say no.

But until we know why they took such a hard line, we will not be able to gauge whether Britain’s relations with the eurozone can be repaired in reasonably short order – or, indeed, whether it is even worth trying.

Was the breakdown due, as has been suggested, to the Foreign Office calling it wrong, or to poor personal relations between Cameron and his fellow European leaders? Was it electioneering by Sarkozy, or were he and Merkel just fed up with Britain always being the odd man out?

All of these probably played a part. But when asked at his press conference why they had refused to give ground on the fairly modest protections Cameron had sought for the City, Sarkozy said something very revealing. Any concession on financial services, he replied, was out of the question because the markets, in his view, were the root cause of the euro’s problems.
 
To British ears, this sounds not just fanciful but delusional. It was not the City or Wall Street that set up a currency without either a fiscal union or a proper central bank to underpin it. If the French and Germans really believe the euro’s problems are down to what they sneeringly call ‘Anglo-Saxon’ capitalism, the divide could be much harder to resolve, and take much longer, than previous European spats.

In the meantime, David Cameron needs to keep his nerve and get through the next few months. Ironically, one could say the same of the eurozone. Both could use a period of calm to work out what to do next.

Cameron’s most immediate problem is that expectation management is half the game in politics, yet nobody was expecting what happened ·