Bloomberg News

Clegg Says Coalition Breakup Would Be Disaster for U.K. Economy

December 12, 2011

Dec. 12 (Bloomberg) -- U.K. Prime Minister David Cameron’s refusal to back a European Union accord has caused a rift with the Liberal Democrats as their leader, Nick Clegg, warned a breakup of the coalition would lead to “economic disaster.”

Clegg, the deputy prime minister, said he was “bitterly disappointed” by Cameron’s refusal to endorse a 27-nation pact to tighten budget rules at an EU summit in Brussels last week. Cameron will make a statement to lawmakers about the talks at 3:30 p.m. in London today.

The move will leave the U.K. “isolated and marginalized within the European Union,” Clegg told the British Broadcasting Corp.’s “Marr” program yesterday. Still, he said “it would be even more damaging for us as a country if the coalition government was now to fall apart. It would create economic disaster.”

The coalition’s austerity drive has helped push the yield on 10-year bonds close to those of German bunds as investors speculate the government will slash the budget deficit. The challenge for Cameron will be to keep the pro-EU Liberal Democrats and anti-EU members of his own Conservative Party -- whom Clegg called “spectacularly misguided” -- inside the same government.

“I’m bitterly disappointed by the outcome of last week’s summit, precisely because I think now there is a danger that the U.K. will be isolated and marginalized within the EU,” Clegg said. “I don’t think that’s good for jobs, in the City or elsewhere. I don’t think it’s good for growth or for families up and down the country.”

Coalition Rift

By refusing to join the fiscal accord, Cameron strengthened the wing of his Conservative party that wants Britain to leave the EU. He also caused the biggest divide with his coalition partners since both parties campaigned on opposite sides of a May referendum on overhauling the voting system.

“The biggest shock for the Liberal Democrats is the realization that they are less important to the survival of the government than the conservative backbenchers,” said Andrew Russell, professor of politics at Manchester University. “The collapse of the coalition would not just be an economic disaster, it would be an electoral disaster” for Clegg’s party, he said.

U.K. Polls

A poll by Survation for the Mail on Sunday yesterday showed that almost two-thirds of voters said Cameron was right to back out of the EU accord, while 48 percent said Britain should leave the EU altogether. Survation interviewed 1,020 people online on the evening of Dec. 9 and on Dec. 10, just after the summit. A poll by ComRes, carried out just before the summit for the Independent on Sunday, showed 52 percent of Britons say the euro crisis is an ideal opportunity for the U.K. to leave the EU. Neither newspaper provided a margin of error for the polls.

Clegg said that Cameron had been placed in a “difficult position” at the Dec. 8 to Dec. 9 EU meeting because he faced “intransigence” from France and Germany. Nevertheless, he added that the government should now “fight, fight and fight again” for Britain’s interests within the EU.

After Britain refused to back a 27-nation agreement without guarantees about future regulations affecting Britain’s financial firms, the 17 euro countries opted to enshrine closer fiscal accord in a new deal that leaves out the U.K. instead of amending EU agreements that date back to the 1950s.

Not Good Enough

Cameron told reporters following the all-night talks that “what was on offer just wasn’t good enough for Britain. It’s better to allow those countries to do their own thing on their own.”

Paddy Ashdown, a former Liberal Democrat leader, criticized the move, saying Cameron’s decision “doesn’t make it easier” to get the U.K. through the economic crisis. “Cameron has acted as the leader of the Conservative Party and not the prime minister of Great Britain,” he told Sky News yesterday.

The EU is the U.K.’s largest market and took 54 percent of its exports last year. The Organization for Economic Cooperation and Development said on Nov. 28 that Britain’s economy may already be shrinking in the current quarter and will contract in the first three months of 2012, pushing it into a recession.

Dutch Finance Minister Jan Kees de Jager said yesterday that Cameron’s decision had isolated Britain.

“It’s at least the case that Cameron and the Britons isolated themselves enormously and actually they got zero twice,” he said in an interview on Dutch television program “Buitenhof.” “The first zero is that they got nothing they wanted for their finance industry. And it may be that in the end only Great Britain won’t take part in a new European treaty.”

Clegg said he will do “everything I can to ensure this setback does not become a permanent divide.”

“A Britain which leaves the EU will be considered to be irrelevant by Washington and will be a pygmy in the world,” he told the “Marr” show.

-- with reporting from Martijn van der Starre in Amsterdam. Editors: Steve Bailey, Francis Harris

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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