British Prime Minister David Cameron in the British parliament in London on December 12, 2011.-/AFP / Getty Images
Prime Minister David Cameron was right not to give up Britain's power to exercise its discretion over its own fiscal policy, for the sake of a European Union fiscal compact that is designed to strengthen the viability of the euro zone, to which Britain does not belong.
Within a shared currency zone, a degree of co-ordination of fiscal policy is desirable, so that one country – say, Greece – does not unduly weaken the currency if it defaults, or, for that matter, so that another country – say, Germany – does not unduly strengthen that same currency, thus pricing the whole zone's exports inconveniently high.
The advantages and disadvantages of co-ordinating the economic policies of nation-states have been debated for a long time. When the international financial crisis struck in 2008, there was a widespread consensus in favour of stimulative measures, which in turn have contributed to a wave of unmanageable fiscal deficits.
The economic crisis hit Britain particularly hard, and it has by no means fully recovered. Consequently, the British government may or may not see fit to return to a policy of fiscal stimulus rather than continue with austerity. That would no doubt have an effect on the exchange rate of the pound – without causing trouble to the currency on the other side of the Channel. Mr. Cameron and his colleagues should remain free to use their judgment when they present their next budget.
As for the Deputy Prime Minister, Nick Clegg, the Leader of the Liberal Democrats, he should have observed the principle of cabinet solidarity and expressed his disagreement within the government, rather than holding forth about it publicly. Moreover, Mr. Cameron made clear on Monday that the Liberal Democrat ministers had approved his negotiating position and strategy before he went to Brussels for the EU summit.
For all the gloomy talk about "two-speed Europe," that duality has existed ever since some EU members chose the euro and others did not. EU institutions ought to correspond to that fact. That will add to the EU's complexity, but it need not mean British isolation – contrary to the dour prophecy of a Finnish member of the European Commission, Olli Rehn, who said Britain had put itself "on the sidelines."