Brussels warns prime minister has strengthened hand of France on financial services regulation by abandoning EU top table
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David Cameron, pictured at a press conference in Brussels in the early hours of Friday morning, where he denied embarking on a policy of splendid isolationism. Photograph: Michel Euler/AP
When David Cameron arrived in Brussels for the EU summit on Thursday night he had one key red line.
The prime minister would not sign up to any revision of the Lisbon treaty that posed a threat to Britain's financial services. When Nicolas Sarkozy and Angela Merkel rejected his shopping list of demands for the City of London Cameron wielded the British veto. This forced France and Germany to pursue a treaty outside the architecture of the EU.
But has the prime minister ended up tripping over his own red line? Cameron feared that placing the new "fiscal compact" for the eurozone within a revised Lisbon treaty without Britain's safeguards would allow the French to threaten the City.
But sources in Brussels say the prime minister has actually brought this process a step closer. This is what one source told me:
This looks like a real mess. Michel Barnier, [the French European commissioner for the internal market and services], will now have free rein to wreak his worst.
Barnier is regarded with great suspicion in Downing Street and the Treasury. Cameron and George Osborne believe he is to blame for a raft of regulations designed to undermine the City.
Britain is always nervous in negotiations on EU financial regulations because these are decided by the system of Qualified Majority Voting in which no country has a veto. Until now Britain has managed to assemble a "blocking minority" of like minded countries, such as the Netherlands, Sweden and Finland, to resist protectionist measures championed by France.
Senior figures in Brussels say that Cameron may in future find it more difficult to assemble a "blocking minoriy" if Britain is perceived as a less influential player within the EU. Cameron's decision to use the British veto for the first time since Britain joined the EEC in 1973 means that a major change to the governance of the EU – the new fiscal rules for the eurozone – will be agreed without a UK signature.
The risk is that countries that are well disposed to Britain will decide that it is more a marginal player in the EU. This could mean that they will decide it is in their interests to side more often with the French and Germans even if they sympathise with Britain.
The prime minister dismissed these concerns when I asked him in Brussels whether he feared that the eurogroup which, by law, has to grow could now act as a battering ram to force through financial regulations. I also asked him at his press conference in the early hours of Friday morning whether he was reviving the 19th century Tory tradition of splendid isolationism. He replied:
Financial services are a matter for the single market...[which] remains the key part of the EU treaties which we are signed up to. These other countries now are having to go off separately from the EU in order to create their new treaty. So we have got to work hard to safeguard the single market, financial services, making sure we complete the single market. That is still the job of the commission, of the court, of the institutions of the EU that we belong to.
Of course there were dangers of allowing the treaty within the treaty. But there were also, of course, risks from other countries going off in the way that they have. I think, though, Britain should be relaxed about this for this reason. There is variable geometry, different groups in Europe. There always has been.
Britain is an absolutely key central member of the NATO. But we are not in the Schengen borders organisation. We are a key member of the single market, we drive change in the single market. But we are not in the euro. I am glad we are not in the euro.
So I think the idea of Europe being more of a network where you choose the organisations you join and you choose those organisations you don't join is actually the way Britain can get what we want and what we need in Europe. We are never going to join the euro.
It will be interesting to see whether Nick Clegg agrees with this à la carte approach to Europe. In an interview this evening, the deputy prime minister highlighted disagreements with Cameron when he denied the prime minister's claim that he had used the British veto. Clegg was supportive of Cameron's insistence on the need for safeguards for the City. But the Clegg vision for Europe sounds different:
I regret of course the outcome of the summit wasn't a unanimous one because as a general rule I believe it's better when Europe hangs together than fall apart, especially when the safeguards the PM rightly sought on behalf of our country were reasonable and modest in scope. But I think any eurosceptics who might be rubbing their hands in glee about the outcome of the summit last night should be careful what they wish for because clearly there's potentially an increased risk of a two speed Europe in which Britain's position becomes more marginalised and in the long run that would be bad for growth and jobs in this country.