New Path in London Leads Away from European Union

David Cameron knows that if there is one thing that pleases his fellow party members, it's a rant against Brussels. At last week's Tory party conference in Birmingham, it didn't take long before the British prime minister had his audience in high spirits.

Cameron reminded his listeners of the negotiations with other European Union member states over the fiscal pact last December. "There were 25 people in the room, urging me to sign," he said proudly. "And still I said no." The reaction was predictable, with the delegates applauding enthusiastically.

The Tories had understood the message Cameron was trying to convey, namely that the government in London no longer has much in common with Europe. The British want to have no part of further integration on the continent, and they also want to withdraw from many areas of policy in which they have been involved in Brussels so far.

The new approach has sweeping consequences for the European Union. Cameron's stance has already prompted the Germans to rethink their approach. Chancellor Angela Merkel had long hoped that a permanent division of the EU could be avoided. She had repeatedly said privately that one should not give the British the feeling that they are no longer part of Europe, and that the door must be kept open for London.

Those hopes have now been dashed. The German government is convinced that the Euro Group will be the core of a new, more deeply integrated Europe.

Each additional step toward closer cooperation in the euro zone deepens the rift within the EU. The Germans are also unwilling to wait for the British to come around in other areas, such as foreign and defense policy. Ironically, Europe threatens to split the year the EU is being awarded the Nobel Peace Prize.

'Spectators in the Gallery'

This goes well beyond the two-speed Europe outlined by German Finance Minister Wolfgang Schäuble years ago. On the one side of the current divide is a hard core of countries that want to work together more closely. On the other side are countries like Great Britain, Denmark and Sweden, which are essentially condemned to be spectators if they no longer wish to join the rest. The dream of an expanding and more tightly integrated Greater Europe is over.

The French have no objections, given that they stand to benefit from this development. The individual countries would shape policy in the euro zone, which is what Paris has always preferred. The European Commission would lose some of its influence, while the Mediterranean countries would receive a stronger voice and Germany's power would wane.

When then-President Charles de Gaulle blocked England's accession to the European Economic Community, one of the precursors to the EU, in 1963, he said: "England's simple participation in the community would considerably change its nature and its volume." The same now applies, only the other way around, for a Europe in which the British are at best spectators in the gallery, like Statler and Waldorf, the two old men on "The Muppet Show."

From the German perspective, the British always provided a counterweight to the French penchant for government control over the economy and trade barriers. For Berlin, they guaranteed that the EU did not compete with the United States on the global political stage. That was why Merkel long opposed any development that would permanently leave Great Britain behind.

Expediting the Split

But the Cameron administration's unwillingness to compromise leaves the German government with no choice. Berlin's official position continues to be that all integration steps must be fundamentally available to all EU members. But in reality the chancellor has long since come to terms with the fact that there will no longer be a path back to the center of the union for the British.

In a closed-door meeting with European Commission President José Manuel Durão Barroso in Bonn last Thursday, Merkel explained her proposal to develop a separate budget for the euro zone. Her advisors envision that the money will be earmarked for targeted measures to promote growth in euro-zone countries. If Merkel's idea prevails, it will be a reflection, in terms of fiscal policy, that there are now two European communities under the umbrella of the EU.

Barroso, who opposes the idea, told Merkel that a separate budget for the euro zone would only expedite the split within the EU. The Portuguese politician also has his own role in mind. The Commission has a strong position in the 27-member EU, but in the Euro Group, the leaders of the individual member states largely hold the reins. But Merkel is not backing down, and her proposal is still expected to be on the table at this week's EU summit.

Excluded From Key Decisions

Fiscal issues aren't the only area in which Berlin intends to proceed without London in the future. Berlin also doesn't want to be reined in when it comes to security and defense policy, which seemed to make little sense without Great Britain until now.

German Foreign Minister Guido Westerwelle, together with his counterparts in France and Poland, is determined to promote cooperation on security policy in the EU. Last fall, the British blocked an attempt by the other 26 EU member states to establish a joint headquarters for military missions. Now the plan is to be revived and implemented, even against London's resistance, if necessary.

The notion that Europe will largely have to make do without Great Britain in the future is also related to developments in the euro zone. The German government advocates parliamentary control in the group of 17 countries in the zone. This could consist, for example, of the formation of a panel of delegates to the European Parliament who come from the euro zone countries.

This could spell the exclusion of delegates from non-euro countries from key decisions. While countries like Poland eventually hope to join the euro, and thus be accepted into Europe's inner leadership circle, Great Britain definitively rules out joining the euro.

A Divisive Force

The British are increasingly perceived as a divisive force in the European Parliament. Hardly a day goes by on which they do not raise new demands, says Herbert Reul, the chairman of the group representing Germany's center-right Christian Democratic Union (CDU) and its Bavarian sister party, the Christian Social Union (CSU) in the European Parliament. Reul says the sentiment they should just leave has become common among his colleagues.

Cameron doesn't want to let things go that far, and he is hoping to avoid an official exit from the EU for as long as possible. But he faces a dilemma. On the one hand, he has to make allowances for his coalition partners, the Liberal Democrats, who still see the advantages of EU membership. On the other, he sees how strong the right-wing populist United Kingdom Independence Party (UKIP) has become, currently polling at between 7 and 12 percent. The UKIP wants Great Britain to withdraw from the EU completely.

Most of all, however, Cameron must contend with the public, which fears a creeping takeover of the Britain by bureaucrats in Brussels. In opinion polls, close to 50 percent of Britons say that they would vote for a withdrawal from the EU in a referendum.

Gauging Impact

Over the summer, Foreign Secretary William Hague announced a comprehensive audit of the impact, good and bad, of EU law on Britain. Hague wants to examine all treaties under which his country has transferred power to Brussels. The move is also a concession to the backbenchers who would support a withdrawal and who, while having little power, receive a lot of support from the people for their critical stance on Europe.

For the audit, each government ministry will initially interview the companies and associations within its scope of responsibility to determine how they feel about certain guidelines, regulations and agreements. "This is government inviting all the interest groups in British business and British society to give their considered view -- both the good side and the bad side together," says David Lidington, minister for Europe at the Foreign Office. A government team will prepare reports based on these opinions, which will be published bit by bit until the end of 2014.

The audit, essentially a gigantic cost-benefit analysis, is set to begin this fall. No EU member has ever ventured to do anything of the sort before, partly because many European leaders fear that the union could break apart more quickly if individual members were to choose the legislation that most appeals to them, as if they were selecting dishes from a menu.

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• Part 1: Britain Losing Allegiance to the EU
• Part 2: An Ugly Fued