Britain woke up last Friday weaker and more isolated, after Prime Minister David Cameron vetoed new European Union treaty changes at a meeting billed “the summit to save the Euro”.

When later defending his actions in Parliament, Cameron claimed he went to Brussels with one objective, “to protect Britain’s national interest”. But that is exactly what he has failed to do. Cameron has undermined British power within the European Union, granting France their long-standing wish of a Europe with them in the cockpit and Britain on the side-lines. Speaking to Reuters, one senior EU official said, “This is not just a long-standing desire, but a long-standing goal of French politics… because in the French tradition Britain never really belonged to the European Union, dating back to De Gaulle’. Sarkozy now has the opportunity to guide France towards a smaller, more integrated Europe run by a Franco-German alliance. This gives French tendencies towards trade protectionism and state intervention in industry greater clout, at Britain’s expense.

This veto also has diplomatic ramifications beyond European borders. The Anglo-American relationship is built in part on our influence in Europe and our ability to act as a bridge between Washington and Berlin and Paris. It seems unlikely Obama will be enthusiastic to continue a privileged relationship with Britain over Europe when Britain is on the periphery. Similarly, William Hague’s strategy of pursuing diplomatic ties with the rising BRIC nations also partly relies on our sway in the single market, which is of importance to the rising industries of these nations.

Not only has Cameron united Europe against him, but he has also failed to win a veto over EU financial services legislation, leading many in the City to question whether their interests have in fact been protected at all. Britain may also now struggle to get support to oppose financial regulations when they come to a vote of the full council. All financial regulations are subject to qualified majority voting, which means that countries must build alliances to oppose a decision – something Britain may now find it difficult to accomplish. 

But the City not only needs Britain to be able to influence European policy, it also needs it to endorse the European project. In a letter to the Financial Times, Tom Brown, senior credit executive at Norddeutsche Landesbank, said the City would be “finished” were it not in a single market with freedom of movement of capital and people. It is not only the single market which is of great importance to the City, but the survival and health of the Euro which is vital to our prosperity. The breakup of the Euro would be so catastrophic for the British economy that the Bank of England says it is unable to even model the scenario. Martin Wolf, chief economics commentator at the Financial Times, has previously estimated that between 20% and 30% of European GDP could be lost should such a catastrophe occur. Britain’s primary concern in these deeply uncertain times must be to protect the Euro and yet the use of the veto did nothing but further destabilize the European economic climate.  

What is becoming clear is that this veto was not the action of a prime minister acting in the national interest, but one acting on far more narrow political interests. For the German and French leaders, it was politically impossible to provide special treaty exemptions for the industry that caused the financial crisis in the first place, so how has it become acceptable in the UK? Admittedly, the financial services industry in Britain is the largest in Europe and accounts for 7.5% of GDP, while a recent survey by PricewaterhouseCoopers commissioned by the City of London Corporation shows that Britain’s financial services firms contributed 12% of all government tax revenue in the 12 months through March. But as Will Hutton pointed out in his Sunday piece for the Observer, only a small portion of the industry was threatened by the treaty. This proportion includes much of the casino dimension of the City, whose actions were most to blame for the financial crisis. It is therefore worrying to consider Cameron’s actions in light of last week’s Financial Times investigation, which revealed that the Conservative party received over £14m from hedge funds in the past 10 years, with donations shooting up since the financial crisis began to hit. 

But the truth is that though Cameron is acting in the interests of a minority, he is supported by a majority, both in his party and the public at large. A poll for the Mail on Sunday found 62% of respondents support Cameron’s move, with only 19% saying he was wrong. The latest Ipsos Mori poll found the Conservatives to have overtaken Labour for the first time this year, as Cameron enjoys a bounce from his use of the veto. And yet such opinions are unsurprising when polls reveal how misinformed much of the British public is over Europe, with Britons on average estimating Britain loses out by 19% in EU contributions. In reality, we contribute only 0.12% more than we receive back in tangible benefits. The unquantifiable benefits are much larger. 

Cameron’s veto was a diplomatic failure that gained us nothing and damaged British interests at home and abroad.  As the Eurozone crisis rapidly evolves, it remains to be seen whether the damage can be undone. Just this week, France was threatened with a downgrade of its AAA credit rating and a war of words ensued between Paris and London. In such volatile economic conditions, it is perhaps the hardest it has ever been to predict long term political outcomes.