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Britain's most important relationship is now with Germany

David Cameron should have paid more attention to European diplomacy and been nicer to Angela Merkel

I mentioned in my column this week that Nick Clegg had been despatched to Brussels to work his polyglot, Euro-expert "Heineken" act - reaching the diplomatic parts other ministers cannot reach. An important part of that process, I gather, is trying to steer the UK's EU partners away from radical treaty change in response to the single currency crisis.

As I've written before, the ultimate demand the markets seem to be making of the eurozone is that Germany stand behind the troubled southern states be deed more than word. That certainly means tougher rules inside the eurozone; it probably also means institutional harmonisation - the "remorseless logic" of deeper fiscal integration that George Osborne has talked about.

But if that turns into a massive EU treaty re-negotiation (or even a less than massive one), Conservative Eurosceptics would demand that David Cameron threaten to wield a veto and demand "repatriation of powers" in return, and possibly a full renegotiation of Britain's EU status. Any new EU treaty would also be subject to powerful demands for a referendum - and not just in the UK. It could trigger a process that might unravel the Union. Not surprisingly, Clegg doesn't like the sound of this. He is a genuine pro-European and he also knows that a treaty renegotiation would put an intolerable strain on coalition relations. There was a passage in his speech on Wednesday that got less attention than it deserved, I thought:

I fully support the goal of better oversight, but I also feel that it is right to caution against returning to the EU's founding texts without first seeing if we can meet these objectives through other means. Our priorities are stability and growth - and they are urgent. To sit around tables for months on end, agonising over this article or that one, becoming engulfed in endless institutional introspection, would be a huge political distraction from the economic task at hand. The danger is that fixating on the treaties will obscure what is really needed. Treaty change should not be a surrogate for political will.

That is the public version. In private I'm fairly sure Clegg will be more explicit with his continental partners about the dangers that a new treaty would pose in terms of stoking up destructive Europhobia back home.

The key relationship here is with Germany. It is the Germans who will want to see the euro made stable with serious rules-based institutional reform as the quid pro quo for putting their domestic finances on the line and for allowing the ECB to betray (as Berlin sees it) the sound money traditions of the old Bundesbank, printing money for a bail out. One official I spoke to says the German cabinet is talking about "pretty ambitious" treaty changes. But a source close to the Deputy Prime Minister says they can be persuaded otherwise.

Either way, Britain's future relationship with the European Union more than ever now relies on the effectiveness of our diplomatic relations with Germany.

A final thought: Knowing all this, I wonder if David Cameron ever regrets pulling the Conservative party out of the European People's Party grouping in the European Parliament. It was a gesture to appease his party's sceptics and a commitment he made in order to be elected Tory leader. He must have thought at the time it was a free hit. (He wasn't then much interested in Europe, thinking the whole issue was toxic and best avoided.)

But Angela Merkel was very angry at the move - her CDU party is in the EPP and she felt snubbed by the Tories' formation of a different group with some decidedly marginal, smaller and more nationalistic European parties. It took quite a lot of effort to persuade the German Chancellor that Cameron was a mature European politician who understood how the EU actually worked. Diplomats and ministers will privately admit that the decision to quit the EPP cost the Tories - and by extension the UK - influence in Europe. There was, for example, a dinner for senior EPP figures on the eve of the last emergency European Council summit. On the guest list: Jose Manuel Barosso, Angela Merkel, Nicholas Sarkozy, Herman van Rompuy ... and no one from Britain.

Tags:Europe