Did Cameron make the right choice?
Cameron’s big call to veto the EU treaty caused waves of fears over Britain’s seat at future negotiating tables within the EU raising the question whether this was a right choice for the UK economy.
Although Britain is not a member of the 17-nation euro zone, it is still a member of the larger European Union and Cameron’s veto frustrated quite a few EU leaders, including the Lib Dems. In reality this is no different to Britain’s stance when the single currency was introduced, which paved the way for a multi-tier Europe and the current euro zone debt crisis. Those who fear that UK will be isolated should take into account that UK is not the only wall that the Merkozy pact hit. There is a good chance that the deal might not pass through the Swedish and Finnish parliament, which would get UK’s veto out of the spotlight.
Quite a few people seem to believe that Cameron’s veto was all about blocking the financial transaction tax and specific financial regulations, but the truth is that the treaty changes are merely about tightening the euro zone budget rules and the UK has already a veto over the dreaded financial transaction tax. So it looks like the veto was all about safeguarding against the UK being sidelined on key economic issues in future as the euro zone gets further integrated. Whether Cameron had better followed the example of the Swedes, Czechs and Hungarians, who played along by buying time, as the agreement is still vague at this stage and may even fall apart of its own accord, that’s a different discussion all together.
Having said that, the next rescue summit is guaranteed to come and by that time it will be clear that the UK’s veto was just a sideshow to the real deal: the euro zone situation. But let’s allow time tell whether the risk was worth it…
In fact, the British pound has been doing exceptionally well against the euro in the aftermath of Friday’s turmoil. The EUR/GBP’s selling momentum continues, with the single currency falling to its lowest in more than nine months against the sterling today. A breakout of the 0.8296 level (year’s low), would give new sell signal and open the way towards 0.8159 (June 2011 low). In case of return above 0.85, long positions would be advisable after the breakout of 0.86.