Most investors outside of Europe understand Britain (still) is more than a little disinterested in signing a new pact that would financially unite most of the continent’s countries; Prime Minister David Cameron’s decision to not sign such an agreement at the end of last year made that quite clear.
What’s not as clear is why, and whether it was the right move for England.
It’s a debate that’s still raging for all involved parties. Even the country’s parliament, as well as its constituents, remain divided on the issue. But the arguments are moot at this point.
From an unbiased, outsider, third-party point of view, however, the unpopular decision might be one Great Britain is glad it made … and not just because of the obvious downsides, either. There are some less-tangible, philosophical ideas the treaty might tacitly impose that should raise eyebrows too.
In no particular order …
1. The agreement isn’t so much a law, but rather, a goal. Ergo, it might or might not be legally binding enough to stand up when the chips are down.
The crux of the European Union fiscal treaty is that each participating country shares its budget plans with the rest of the pact’s members, and agrees to allow the group’s overseers to verify that particular country isn’t wading too deeply into debt. And if it does take on too much fiscal risk, the treaty further lays out a sanction or penalty plan.
All well and good, but will these treaty participants be as open-minded when push comes to shove and they have to do what they have to do to protect their homeland? In other words, do we really think loyalty to the pact will be stronger than loyalty to one’s home country?
2. The European Union’s fiscal ‘pact’ isn’t free. In fact, it takes more than a fair share of aim at London.
Not that London is the financial center of the world, but it is the financial center of Europe, and much of the region’s banking, underwriting and investing transpires through the city. No big deal, except the proposed pact specifically taxes financial transactions through what’s been dubbed the “Tobin tax.” This means a chunk of Britain’s economic engine would be sapped just because the financial industry is well-developed there.
3. Other members might not have England’s — or anyone else’s — best interests at heart.
New French President Francois Hollande has made no bones about it — he dislikes the rich and views the business world as the enemy. Not that he’s not entitled to his opinion, but who does he think is funding the bulk of France’s government operation? Rich people’s wealth and businesses employing the country’s workers are France’s lifeline, and he’s got a chip on his shoulder with both.
Now, that in and of itself has nothing directly to do with Cameron’s decision to not join the EU treaty club. Indirectly, though, one has to wonder what sort of leverage the surprisingly popular Hollande might exert to “tweak” the treaty or revamp its rules in the future. His anti-business attitude is in complete conflict with Britain’s pro-business aim … even if that pro-business environment leaves some room for occasional corruption.
4. Whether it’s the intent or not, the fiscal treaty — which still is distinct from the politically centered European Union — is another step toward the centralization of the member country’s economies through the use of a common currency.
Britain adamantly has avoided adopting the euro currency, opting to stick with the pound instead. The move makes England a bit of a European oddball in that it still deals with exchange rates. However, by not blending its currency, Britain also has maintained its ability to tweak and protect its economy the way it needs to without needing the approval of the eurozone.
What’s that got to do with the new treaty the country refuses to join? Nothing directly, since the pact still wouldn’t mandate the usage of the euro in England. However, the treaty would put Britain’s fate indirectly in the hands of most of the rest of the continent. If the eurozone were a smashing success, that would be one thing. The cooperation of multiple economies as if they were one, however, might have caused as many problems as it has solved since the introduction of the euro in 1999.
Not that Britain has all the answers to its problems, but neither does the rest of Europe. The reality is the new financial union doesn’t offer the country anything it can’t do for itself (like printing money) and doesn’t offer anything the country won’t have anyway (like trade partners).
The pact only offers confusion and red tape — the last things Britain needs getting in the way now.