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The Eurosceptic prophecy fulfils itself

Cameron has traded influence in the European Union for a brief respite from rebellion in his party,

David Cameron really didn't have much of a choice in the end. As it became clear that he simply wasn't going to get the concessions he needed – "safeguarding" Britain's interests in the single market; blocking aspects of European financial services reform – he couldn't sign up to a new EU deal. Trying to force such a treaty through parliament would be immensely painful and damaging to the Prime Minister. Besides, Ireland and the Netherlands have constitutional obligations to hold referendums on new EU treaties. It would be very difficult for Cameron to refuse to consult his citizens if the Dutch and Irish were being asked.

So he said "no". What does this mean? The eurozone members and six others – a eurozone-plus – aim to proceed with their own pact to stabilise the single currency and pursue fiscal integration. Technically, it is very difficult for them to use EU institutions to enforce their deal (which is why Germany, in particular, would have preferred a full 27-member EU treaty, and why markets will question whether the euro has in fact been saved).

There will now be a lot of wrangling over what competences this new inner European core has to enact economic reforms that affect the outer tier. Britain's problem is that the outer tier is tiny: the UK and Hungary, possibly Sweden and the Czech Republic. Legally they have a strong case to prevent the eurozone-plus group from building a new institutional architecture from existing EU bodies – the Commission, the Court, the Parliament etc.

But in practice the inner core is big enough to form a majority in the Council – the assembly of heads of government where real EU decisions are made – to the near-permanent exclusion of Britain. This is the "caucusing" effect that the Foreign Office has been worried about – a situation in which the eurozone gang arrives at summits with a pre-agreed position and presents it to the outer tier as a fait accompli. When the reality of that new balance of power becomes clear, Hungary and the other naysayers might well decide their long-term interests are better served by eventually joining the inner circle, leaving the UK completely isolated.*

In other words, Cameron has blocked a treaty that he judges might have damaged UK interests, thereby creating a new settlement in the EU that could permanently tilt future negotiations against Britain. That in turn means hardline Tory sceptics will have good grounds to say that our relationship with the EU has been fundamentally altered and, inevitably, that there should be a referendum.

As I wrote yesterday, the Tories bank concessions on Europe and then come back for more. Last night Cameron made a very big concession indeed – he removed Britain from the next phase of the European project.

Sceptics should be pleased and, as my colleague Samira Shackle has noted this morning, some of them are. Then they will find, as they always do, that pushing for separation leads to diplomatic isolation, which reinforces their suspicion that the whole thing is a conspiracy against Britain. The prophecy fulfils itself. So they will insist that Cameron now set about the business of "repatriating" powers from Brussels, which, of course, he is much less able to do, having isolated the UK and antagonised fellow EU leaders. And when Cameron cannot then secure adequate "repatriation" – and nothing short of divorce is adequate for some Tory backbenchers – the calls for a referendum will sound out louder than ever.

The Prime Minister's non-deal in Brussels last night has bought him just a brief a moment of respite from rebellion in his own party. For that, he has accepted a downgrading of UK diplomatic relations with our major trading partners, leading us to the outermost margin of the EU and ever closer to the exit.

*Update: Indeed, Hungary sensed which way the wind was blowing pretty quickly and has now lined up with the non-UK consensus. It is still possible, of course, that Cameron is gambling that this emergency alliance of the rest of Europe will not last. National parliaments will have to be brought on side, some countries will expect referendums on a new euro pact and, crucially, since last night's deal doesn't appear to have actually resolved the structural flaws in the design of the single currency it might well fail to ease the market pressure driving the euro members apart. If it becomes clear that smaller states have signed up for something that gives Germany and France all of the power with no economic security in return there is bound to be a significant nationalist backlash in many countries. The whole thing could unravel, in which case the hardline British eurosceptics' ambition of getting out altogether would be realised even sooner.