Cameron is a spectator at euro endgame

Any deal will have "Made in Germany" stamped all over it.

It appears that European leaders are finally mobilising the political will required to save the single currency from collapsing. German Chancellor Angela Merkel's speech to the Bundestag today signals clear recognition that institutional reform, binding euro member states into a very different model of fiscal integration, is the only outcome that will persuade markets that the whole project is sustainable.

Last night Nicolas Sarkozy also made a speech suggesting he was moving towards the Merkel position.

The French President said, in effect, that he will work with the German Chancellor to establish a more rigorous system of European governance. He rejected the idea that this meant a new "supranational" model, but he seems to have accepted the principle of automatic sanctions, imposed by a European institution, against single currency members that break the rules of budget discipline originally laid down in the founding Stability and Growth pact.

For months it has been clear that market turmoil would not subside until euro zone leaders agreed clear proposals to express economic solidarity on the level of institutional reform.

Crudely speaking, Germany would have to put its economy up as collateral for debt accrued by weaker member states. In exchange, the indebted countries would have to submit their budgets to scrutiny by European institutions - the European Central Bank (ECB) or some beefed up administrative cadre running the European Financial Stability Facility (EFSF). Ultimately that kind of arrangement leads towards the establishment of a prototype European Finance Ministry.

In any case, the choice is between a new pact that creates the basis for an integrated hardcore eurozone or the catastrophic collapse of the single currency.

Over recent weeks there has been a lot of speculation about Angela Merkel's behaviour through the crisis, and why she appears to have let things get to such an extreme point. Germany has come in for a lot of criticism for withholding permission for the ECB to take action to inject liquidity into the market and, if necessary, buy up debt that the market has rejected. She now seems to be relenting on that front, but her preferred sequence of events is still political agreement on reform preceding full-scale ECB intervention.

A popular interpretation is that she does not have enough domestic political support to encourage measures that look like an abandonment of Germany's cherished attachment to monetary discipline - the tradition of the mighty old Deutschmark. This in turn is said to stem from the deep scars left in the German psyche by the hyperinflation of the inter-War years and all the terrible things that followed from the collapse of the Weimar Republic.

But there is another interpretation, less commonly discussed but no less plausible. It is that Merkel has been withholding support for interim and ad hoc measures to increase the pressure on other European states to find a longer term political solution. In other words, she has waited for other European leaders to be so freaked out by the prospect of euro collapse that they will agree to reform the EU on German terms.

It seems to be working, but it is extraordinarily risky. If the whole thing falls apart, Merkel will get a large portion of the blame. If, however, a political deal is done at one minute to midnight and the result is a new stability pact with "Made in Germany" written all over it, Merkel just might have pulled off a most extraordinary act of diplomatic brinksmanship. It looks like a game of chicken between Germany and the rest of Europe where the penalty, if neither side budges in time, is financial apocalypse.

This is all quite bad news for David Cameron. He has accepted the logic of eurozone fiscal integration for the sensible and pragmatic reason that anything less would risk a systemic banking crisis across Europe. (An indication of the threat: a Treasury official told me earlier this week that contingency plans include anticipation of financial failure on a scale that would require nationalising UK banks.)

But given the extreme urgency of the situation, and the fact that Britain is not a euro member, Cameron's hopes of getting some quid pro quo for supporting a new treaty are receding from view. Changes are now very likely to be agreed among the 17 single currency members, which means the UK would not have a potential veto that might be used to extract concessions. In any case, under the circumstances it would be diplomatic lunacy to start impeding crisis resolution now with frankly irrelevant calls for "repatriation of powers" demanded by Tory backbenchers. Cameron is meeting Sarkozy today, but it is far from clear what he thinks he can get out of the talks.

The bottom line is that Cameron is a spectator. The most he can hope for is vague assurances that the single market will not be skewed or undermined by eurozone consolidation. That is no good to the Tory eurosceptics and they will be, I suspect, very unimpressed by their leader's inability to turn this crisis into an opportunity to redefine Britain's relationship with the EU. It will be redefined of course - just not on British terms.

 

Rafael Behr is political columnist at the Guardian and former political editor of the New Statesman

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I believe only Yvette Cooper has the breadth of support to beat Jeremy Corbyn

All the recent polling suggests Andy Burnham is losing more votes than anyone else to Jeremy Corbyn, says Diana Johnson MP.

Tom Blenkinsop MP on the New Statesman website today says he is giving his second preference to Andy Burnham as he thinks that Andy has the best chance of beating Jeremy.

This is on the basis that if Yvette goes out first all her second preferences will swing behind Andy, whereas if Andy goes out first then his second preferences, due to the broad alliance he has created behind his campaign, will all or largely switch to the other male candidate, Jeremy.

Let's take a deep breath and try and think through what will be the effect of preferential voting in the Labour leadership.

First of all, it is very difficult to know how second preferences will switch. From my telephone canvassing there is some rather interesting voting going on, but I don't accept that Tom’s analysis is correct. I have certainly picked up growing support for Yvette in recent weeks.

In fact you can argue the reverse of Tom’s analysis is true – Andy has moved further away from the centre and, as a result, his pitch to those like Tom who are supporting Liz first is now narrower. As a result, Yvette is more likely to pick up those second preferences.

Stats from the Yvette For Labour team show Yvette picking up the majority of second preferences from all candidates – from the Progress wing supporting Liz to the softer left fans of Jeremy – and Andy's supporters too. Their figures show many undecideds opting for Yvette as their first preference, as well as others choosing to switch their first preference to Yvette from one of the other candidates. It's for this reason I still believe only Yvette has the breadth of support to beat Jeremy and then to go on to win in 2020.

It's interesting that Andy has not been willing to make it clear that second preferences should go to Yvette or Liz. Yvette has been very clear that she would encourage second preferences to be for Andy or Liz.

Having watched Andy on Sky's Murnaghan show this morning, he categorically states that Labour will not get beyond first base with the electorate at a general election if we are not economically credible and that fundamentally Jeremy's economic plans do not add up. So, I am unsure why Andy is so unwilling to be clear on second preferences.

All the recent polling suggests Andy is losing more votes than anyone else to Jeremy. He trails fourth in London – where a huge proportion of our electorate is based.

So I would urge Tom to reflect more widely on who is best placed to provide the strongest opposition to the Tories, appeal to the widest group of voters and reach out to the communities we need to win back. I believe that this has to be Yvette.

The Newsnight focus group a few days ago showed that Yvette is best placed to win back those former Labour voters we will need in 2020.

Labour will pay a massive price if we ignore this.

Diana Johnson is the Labour MP for Hull North.