Britain's EU rebate called into question

The UK rebate - which has assumed totemic status in the British public's imagination - sees London get back billions of euros each year (about £5 billion) from the EU budget, a concession won by Margaret Thatcher in the 1980s to balance what the UK pays into EU coffers.

Shrill debate about the merits of the rebate is a fixture of discussions preceding each of the seven-year EU budget cycles. Normally shrugged off by Britain, the forthcoming money debate for the 2014-2021 period is different because MEPs for the first time have the right to approve the budget.

Tuesday's plenary debate saw MEPs unleash much of the pent-up anger about what many politicians in Brussels see as Britain's permanently lukewarm view of the EU.

"We cannot allow ourselves to be blackmailed. I think it was a good signal to send," Martin Schulz, leader of the Socialists and Democrats said. Guy Verhofstaft, his liberal counterpart, said: "You only walk away if you are sure the others will come after you."

The UK's decision not to allow full treaty change resulted in all other member states pledging to construct an intergovernmental treaty instead - meant to be signed by March.

But this route is fraught with legal and political challenges - not least over how the treaty should be drawn up, what should be in it, its implications for democracy and how it should be enforced.

MEPs, having being informed that they will be "associated" with the process, are already angling for a greater role.

"The European Parliament has to be the third equal partner alongside the commission and the Council. If not, I can only recommend to the European Parliament not to take any further step in this process," Schulz said during the debate.

European Commission President Jose Manuel Barroso devoted much of his speech to assuring MEPs that EU institutions will continue to play a major role in the new set-up, with some EU officials concerned that the fiscal pact will operate beyond Brussels' control and with new institutions.

"The agreement will not replace Union institutions and procedures but on the contrary build on them. The commission will do all it can so that this agreement is legally safe and institutionally acceptable," said Barroso, noting that we would try and get most of the proposed changes agreed under normal EU law.

Barroso compromise blocked

Barroso also indicated his frustration with the outcome of the summit by revealing that he had tabled a compromise to try and get London on board.

"In search of compromise, I tabled a clause providing, in the EU treaties, that any measures adopted by the Council and applying to the euro area only, must not undermine the internal market including in financial services. Unfortunately this compromise proved impossible," Barroso said.

UK Prime Minister David Cameron has argued since the summit that he took the steps he did to protect the City of London, Europe's largest financial services sector.

Although the majority of MEPs were critical of the summit's intergovernmental outcome, some said it was inevitable.

"Where we are now is a result of the misleading "ever closer union" and "one-size-fits-all" doctrine," said Czech deputy Jan Zahradil of the anti-federalist European Conservatives and Reformists group.

Nigel Farage, a prominent eurosceptic, believes that while Cameron "gained no concessions whatsoever" from his veto move, he has opened the debate in Britain about EU membership as a whole.

"Cameron does not know what he has unleashed," said Farage.