EU agrees on a dramatic new financial pact, but Britain opts out

BRUSSELS, Belgium, — The British made much of their isolation, the French crowed they got what they wanted and the Germans said little after the EU agreed Friday on a dramatic new financial pact to save the euro and restore confidence in the struggling European economies by imposing strict limits on spending and borrowing.

But there was not much rejoicing in the wee hours at the EU headquarters in Belgium because Britain emphatically rejected the deal. German Chancellor Angela Merkel, whose economy is by far the biggest and strongest in Europe, had badly wanted unanimity on the new arrangements. The EU agreed Friday to inject as much as 1.5 trillion euros (about $2 trillion Cdn) into the financial markets over the next three years to help bail out troubled members countries.

However, the euro, the common currency of 17 European states, whose future has been in jeopardy by huge debt problems of Greece, Italy, Portugal, Spain and Ireland, sunk lower against the U.S. dollar suggesting that it was still a long way from establishing the stability that European leaders desperately want.

A total of 23 of the 27 EU countries were convinced this was the best, or at least the fastest, way for Europe to restore confidence in its battered and shaky financial system.

Sweden and the Czech Republic said they needed time to consult with their parliaments and Britain and Hungary, which like Sweden and the Czech Republic, do not use the euro, rejected the deal. Hungary, however, later sent signals that it was still considering its position.

By not signing on, Britain, effectively blocked a completely new treaty to try to solve Europe's financial crisis.

It also signaled a deep, continuing political divide in the higher reaches of the union.

International markets, which will have the final say on whether the emergency measures that have been agreed have gone far enough to restore stability and restore public confidence in the European economies, gave a tepid initial response to the deal.

After reacting to rumours of a deal by moving sharply up or down for many weeks, Asian markets dropped on news of the deal and European markets only moved up slightly.

The compromise that emerged Friday will be easier to implement than a completely rewritten, fully binding universal financial treaty.

It was designed in such a way that it could be quickly ratified.

London has long resisted the close EU ties favoured by Berlin and Paris. It rejected the euro in 1990, preferring to stick with the pound. It is at odds with Europe not only on financial matters, but on other major issues such as common visas for visitors and open borders for everyone travelling within the union.

Prime Minister David Cameron strongly opposed the deal because it did not provide special exemptions or protections for Britain's huge and vital financial services sector against the future imposition of new European financial rules. Germany and France opposed this caveat.

"My judgment was that what was on offer just wasn't good enough for Britain," Cameron told reporters early Friday morning. "I wasn't prepared to accept that treaty and take it to my parliament."

"David Cameron requested something we all considered unacceptable," was how French President Nicolas Sarkozy put it. While saying he would not criticize Britain for its decision, he said Britain could not sit outside the agreement and continue to criticize European monetary positions.

Chancellor Angela Merkel of Germany, who badly wanted a new or heavily amended financial treaty to enforce stringent rules on debt and national budgets, called what resulted Friday morning "a good result." What the chancellor did not get was a sweeping, comprehensive, unanimous pact.

Whether the measures agreed upon work or not remains very much in question.

The southern EU states remain in grave financial distress with so much debt that they are having trouble raising money by issuing bonds or paying interest on existing bonds while they reform their shattered economies because few investors have confidence in their ability to pay them back. There was also nothing new in the emergency agreement that would allow for the weakest European economies to start growing again, rather than continuing to shrink.