How David Cameron Can Save the Eurozone

If the British leader throws his support behind German rules, France will be isolated.

German chancellor Angela Merkel listens to British prime minister David Cameron speak during a G8 conference in Muskoka, Canada, June 25, 2010
German chancellor Angela Merkel listens to British prime minister David Cameron speak during a G8 conference in Muskoka, Canada, June 25, 2010 (The Prime Minister’s Office)

The United Kingdom, especially under conservative leadership, has had wanted so little to do with Europe’s debt crisis that French president Nicolas Sarkozy reportedly chastised his British counterpart for asking to be involved in fixing it. Yet the widening rift in Franco-German relations represents an opportunity for the British to define the future eurozone — and maybe save it from fiscal collapse.

French and German interests are increasingly divergent. In fact, they have been since Germany was reunited in the 1990s and the Franco-German parity that had hitherto defined Europe was gone. Paris now worries about Germany’s close relations with Russia while Berlin refused to participate in this year’s NATO intervention in Libya.

France is no longer Russia’s special friend in Western Europe — “at least not exclusively,” wrote Miguel Silva here in August, so “Paris has moved into a rapprochement with Britain in order to hedge its bets.” Within the realm of military adventurism, Anglo-French cooperation is viable but is it economically?

David Cameron seems more inclined to endorse European economic integration on Germany’s terms than France’s — at long as his nation is excluded. The Wall Street Journal reported this Saturday that the British leader was prepared to back Angela Merkel’s push for treaty revision as long as London’s financial center would be exempt from financial reforms and Britain allowed to opt out of new regulations it doesn’t like.

Britain’s desire for a special place in Europe, where it’s able to profit from economic union without sacrificing budgetary sovereignty, has irked existing eurozone nations but as Walter Russell Mead points out at The American Interest, it doesn’t pose an insurmountable obstacles to the Germans.

The French demand that the European Central Bank become a lender of last resort for troubled European governments and banks, on the other hand, is impossible for the Germans to accept. Between the two, the rational German choice may well be to cut a side deal with the British.

With Cameron’s fiat, other European Union member states outside of the currency area, including Poland and Sweden, may also accept German fiscal prudence as the new normal.

If Britain and Germany team up, France, which now teeters on the brink of becoming the next Italy, will have no choice but to relent and implement budget cuts and economic reforms that are long overdue.