Forget economics. This was a political moment, and it will be remembered as the time the politicians failed.
Angela Merkel failed: The German Chancellor could have used her country's nearly unanimous clout to confront the root causes of the euro crisis, which lie in inequalities of trade and a collapse in consumption, but instead chose to pretend it was a matter of overspending by Mediterranean governments, to be solved with future rules. Mario Draghi failed: The European Central Bank chief could have launched a bond-buying, expansionist rescue – in short, acted as if this were the emergency it very much is. But instead he stuck to a suicidally narrow interpretation of his mandate, pretending that inflation, rather than its opposite, is the threat.
But most of all, David Cameron failed. The British Prime Minister will be applauded by his more isolationist backbenchers for his decision to pull out of Friday's euro-rescue treaty, making Britain probably alone among the 27 European Union countries in refusing to participate in the pooling of resources and common sacrifice necessary to put the continent's finances back on track.
His withdrawal is a serious blow to Europe, the world's largest single economy – making a collapse of investor confidence in the continent far more likely, and forcing the bloc into an imposed Franco-German solution rather than the sort of larger arrangement that Britain could have helped organize, if it had been constructive instead of destructive.
This is not a localized matter: All major economies, including Canada's, are highly exposed to the euro; a fall could collapse banks in North America, too. This was the worst imaginable moment for nationalist isolation. Yet, that was what we got.
So it's almost certainly a disaster for Britain. It's hard to imagine a scenario where, in the wake of a 26-country agreement to create a fiscal and financial regulatory union with one dissenter, Britain doesn't end up more isolated from Europe.
While Mr. Cameron's Euro-skeptic MPs argue that Britain should withdraw into a trade-only relationship with Europe along the lines of Norway or Switzerland, they don't understand: Britain's trade ties with the continent are built on six decades of common laws, standards and regulations, all of which are now jeopardized. The British exemption could only result in less trade, not more.
The stakes are huge. This is a country, remember, whose annual trade with its 26 EU neighbours is between £140-billion and £185-billion, somewhere between 50 per cent and 60 per cent of all imports and exports. By comparison, it does £33.5-billion in business with the United States (15 per cent), £5.1-billion with China (2.3 per cent) and £3.6-billion with Canada (1.6 per cent).
The crippling of that relationship – the rejection of a country of 60 million by a continent of 500 million – would be a noticeable loss for Europe's exporters, but a near total one for Britain's. As every British prime minister learns within days of taking office, almost everything depends on good relations with the European neighbours.
Within Britain, Mr. Cameron will get a warm response: Europe is unpopular with voters, and there's constant talk of Mr. Cameron's facing a challenge from his party's anti-Europe starboard flank. That's pretty implausible. While many Tory MPs call themselves Euro-skeptics (and who, these days, isn't somewhat skeptical about the euro?), the caucus of MPs that actually wants Britain to pull out of the EU, the "Better Off Out" group, has only 10 members. Let's presume there's a similar number hiding in the closet. In a party with 306 seats, that's hardly a challenge.
The idea that this was necessary to protect the City of London from European regulations also holds no water. The threats will be worse with Britain outside, as it won't be able to veto them (and they can still be imposed).
The threat of an emergency financial services tax imposed by the EU was also non-existent: Britain already has such a tax, the only one in Europe (its stamp duty), and it hasn't prevented the Square Mile from becoming the world's premier trading destination.
Reports suggest Mr. Cameron had genuinely wanted a 27-country pact but froze at the prospect of facing voters with an agreement that didn't offer exemptions to Britain. His country has always been the European exception, ever since Margaret Thatcher negotiated lower EU membership fees in 1984. In this case, Mr. Cameron knew full well he was trading a momentary political gain for a long-term loss.
"I think I did the right thing for Britain," Mr. Cameron told the BBC on Friday, claiming that Britain could take or leave pieces of the EU – a cafeteria common market. No serious observer believed him. Nick Clegg, the Liberal Democrat Deputy Prime Minister, certainly didn't: "Any Euro-skeptic who might be rubbing their hands in glee about the outcome of the summit should be careful for what they wish for."
What's saved the Western economies from total collapse in the past three years has been the heroic levels of international co-operation. There's always been the threat of 1930s-style isolationism. We just never thought it would come from an intelligent free trader such as Mr. Cameron.