Cameron Draws Criticism From Labour for Watering Down EU Veto - BusinessWeek

January 31, 2012, 1:26 PM EST

By Robert Hutton and Gonzalo Vina

Jan. 31 (Bloomberg) -- David Cameron drew criticism from Labour Party leader Ed Miliband for softening his opposition to a pact to enshrine fiscal discipline in the euro area after he found himself isolated in the European Union last month.

The prime minister said following an EU summit in Brussels last night that Britain he will allow European institutions including the European Court of Justice to be used to enforce new fiscal rules in the euro region, a reversal from the line he took in December.

Amid jeers from Miliband and his opposition lawmakers in the House of Commons in London today, Cameron said Britain's interests remain untouched because the agreement signed by 25 of the 27 members of the EU isn't a treaty. As such, the new agreement affects only the 17-nation euro area and doesn't encroach on how the rest of the EU is run, Cameron said.

"The phantom veto of December is now exposed," Miliband told lawmakers. "He has secured absolutely no protections at all. He says it's not really a treaty. It talks like a European treaty, it walks like a European treaty, it is a European country."

Miliband said Cameron had walked out of the December meeting without gaining anything for the U.K. and that he was now forced to make concessions.

"It doesn't have the force of EU law for us," Cameron told the Commons. That's the fundamental protection I secured with our veto in December. That protection remains."

Legal Action

Seeking to keep rank-and-file euro-skeptic members of his own Conservative Party on side, Cameron said he will take steps to protect Britain's interests and pursue legal action if needed.

The premier won praise from his own lawmakers in the chamber, after initially drawing Tory anger following the summit last night.

The leader of the Conservatives in the European Parliament, Martin Callanan, accused Cameron of giving way to his Liberal Democrat deputy, Nick Clegg. "I blame a combination of appeasing Nick Clegg, who is desperate to sign anything the EU puts in front of him, and the practical reality that this pact is actually quite hard to prevent," Callanan said in an e- mailed statement.

Tory lawmaker Bernard Jenkin said the euro region was embarking on fiscal union "in the full expectation that the EU institutions will do their bidding," nullifying the U.K. veto.

'Fundamental Change'

"This is a fundamental change in the nature of the EU, where a veto counts for nothing and highlights how the terms of U.K. membership of the EU are becoming ever more unacceptable," Jenkin said in an e-mail.

EU leaders yesterday completed the fiscal-discipline treaty, which speeds sanctions on high-deficit states and requires European governments to anchor balanced-budget rules in national law. Eight countries outside the euro backed the pact, leaving Britain and the Czech Republic to boycott it.

Cameron broke ranks with French President Nicolas Sarkozy and German Chancellor Angela Merkel last month after he failed to secure guarantees of a British veto right over future financial regulations. Cameron called them a threat to London's standing as Europe's leading financial center.

Cameron said at the time that any changes made under the alternative fiscal pact could not use EU institutions because they could only carry out policies applying to all 27 members.

Europe has been a lethal issue for Conservative prime ministers since at least 1990, when it led to Margaret Thatcher's downfall over her refusal to agree to a timetable for joining the single currency. Her successor, John Major, found his leadership undermined by euro-skeptics on his own side.

--Editors: Eddie Buckle, Andrew Atkinson

To contact the reporters on this story: Robert Hutton in London at rhutton1@bloomberg.net; Gonzalo Vina in London at gvina@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net