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James Warner: This dawn deal and Britain's veto had nothing to do with saving the eurozone


The last time I blogged on treaty change, I wrote that British PM David Cameron's threat to exercise his veto if Britain didn't get what it wanted was just hot air. That's turned out to be very far from the truth. He's actually gone and done it.

My assumption in writing that blog was that Germany and France were perfectly happy to give Cameron the comparatively limited roster of things he was asking for in return for getting the unanimous agreement of the EU 27 to treaty change. Indeed, that is what many British officials believed.

Well, perhaps Germany was, but France certainly wasn't. It's now all too plain what's going on here. It's got nothing to do with saving the euro, though this provides a handy excuse for pushing through federalist fiscal disciplines.

No, what this is really about is French politics. The loss of sovereignty the new "fiscal compact" entails must be as much anathema to French voters as it would be for British ones if the UK was required to do the same thing. The electoral consequences are potentially catastrophic for Nicolas Sarkozy.

Blaming the old enemy for standing in the way of measures that masquerade as solutions to the crisis makes for a useful diversionary tactic. The sticking point – financial regulation – also plays strongly to the gallery and to the present psychology of denial.

It remains an article of faith in Europe that the root cause of the crisis is reckless finance, not the altogether more obvious, but plainly unacceptable, explanation of unsustainable current account imbalances. In any event, Mr Sarkozy will be able to say to his country that he's getting most of what he wanted out of the new European settlement.

He never wanted treaty change in the first place, but a narrower intergovernmental agreement between the euro 17. He's also succeeded in persuading Angela Merkel to abandon some of the extremer elements of her demands for new fiscal disciplines.

What all this means for markets is at this stage hard to judge. Stock markets were flatlining this morning as everyone attempted to figure out the significance of it all. My own view is that what happened overnight in Brussels is of a great deal more political significance than it is economic.

It is neither positive nor negative for the future of the euro, which is the main issue concerning the markets. In the meantime, the eurozone soldiers on with a plan which policymakers seem to think will restore confidence to markets, but infact has very little bearing on the underlying balance of payments crisis.

There is an old joke about Germans and economics that goes something like this – economics is not rocket science; if it was, the Germans would be much better at it. European policymakers haven't yet fully understood the economics of the single currency, or if they have, they are not admitting to it.

Blaming Anglo-Saxon speculators for your troubles – a French propensity down the ages – is so much easier than properly confronting them.