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A new chapter in EU integration, whether Britain likes it or not

The new EU treaty is bound to contain something that British sceptics think requires a referendum.

There will be a new treaty. It will commit euro members to fiscal discipline. It will be largely designed by the 17 current members of the European single currency. Others can join in if they want to. Those are the essential components of the deal announced today by German Chancellor Angela Merkel and French President Nicholas Sarkozy after crisis talks in Paris.

In a sense this is exactly what had been expected. Discussions had been pointing in this direction since the end of last week. But the fact that the two leaders managed to say it at the same time in a live press conference lends the project a certain solidity and irrevocability. Something along the lines of what has been pledged might actually happen. Markets certainly seem reassured. The two leaders have promised monthly summits stretching ahead into the future (the preferred deadline is March 2012) to hammer out the details until a treaty is agreed and a new institutional and legal basis for the euro is fixed. The crucial fact as far as Britain is concerned here is that those summits will be convened among euro member heads of government. That is reasonable enough given it is their currency in crisis.

But Merkel did not describe these new summits as euro-fixing technical negotiations. She made it clear they would have a wide-reaching economic agenda to look at ways to stimulate growth through market reforms. That assertion spells disaster for David Cameron. His main demand in this process was to be included in the conversation about the future of the single market, to make sure Britain's vital interest in that aspect of European Union economic management was not overlooked in the hurry to redesign the single currency. If there are to be monthly euro-members-only summits looking at the whole growth and reform agenda it seems certain single market rules are going to get caught up in the negotiations. There are all sorts of ramifications if Britain isn't at the table, starting with the likely acceleration of moves on banking and finance reform to shift the balance of commercial power from the City of London to Frankfurt and Paris.

At a briefing shortly after the Merkel-Sarkozy press conference, the Prime Minister's spokesman made it clear the UK government's position is to examine more closely the content of what Germany and France are suggesting before forming a view on whether it would be better dealt with as a 17-member (euro only) treaty or a 27 member (full EU treaty). That position won't hold for long. It doesn't look as if Britain has much of a say anyway, and either outcome gives Cameron a headache. If he can persuade the European Council later this week that all 27 EU members should be working on a new treaty, he invites his backbenchers to present him with a shopping list of powers to repatriate during the talks. If he accepts that it should just be a 17-strong euro member treaty negotiation, he risks surrendering Britain's seat in a discussion that is plainly vital to our national economic interest. That process might still produce a document that has to be ratified by parliament. One way or another, the clamour for a referendum will grow.

Merkel and Sarkozy appear to have agreed a fast-track eurozone consolidation on a take it or leave it basis as far as the rest of the EU is concerned. From the French and German perspective it now looks as if the future of the European Union and the future of the single currency are the same thing. They are embarking on a new phase of integration. The implicit message to Britain: come along if you must, but stay in the back seat because we're driving.