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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Peter Mandelson slams Jeremy Corbyn and Keir Starmer for “not acting in the national interest”

The Labour peer and former cabinet minister accuses his party leader and the shadow Brexit secretary of having “torpedoed Labour’s ability to oppose”.

The government has chosen to interpret last year’s sea-change referendum in an extreme way and embraced a set of positions and values on Brexit and migration that risk making the UK an illiberal, fractured and smaller nation, literally and economically.

How can the government get away with this? The referendum was not a landslide victory.  Millions of Labour, Conservative and Lib Dem supporters voted on the other side. Only a proportion of the winners voted as they did for xenophobic reasons – and they certainly did not vote to make themselves poorer.

Despite this, the government has chosen a course of action – a hard Brexit – that reflects the views of vocal and influential hardliners, not the majority of the public. Minority opinion has never been more powerful.

Theresa May is putting her own interest ahead of the country’s. She does not want to be the fourth Tory prime minister to be politically crucified by her party on the cross of Europe. She is desperate for the support of the right-wing press and the nationalist wing of her party.  Where Cameron placated, she has actively empowered, regardless of cost. And she hopes the costs of a hard Brexit will only emerge the other side of the next general election.

But this does not explain Labour’s position. The party’s frontbench has effectively brushed aside the views and interests of the bulk of its own supporters who wanted to stay in the EU and now don’t want to jeopardise their jobs by leaving the single market and the customs union as well. They value migration and want to see it managed, not virtually ended.

By going along with hard Brexit now, Jeremy Corbyn and Keir Starmer have torpedoed Labour’s ability to oppose the government’s approach when it fails later on. This is not acting in the national interest.

Nobody would claim that Brexit is easy to navigate politically, but Labour has rendered itself impotent on the most important set of issues facing Britain in most peoples’ lifetime. Setting a series of belated “tests” for the government will hardly reverse the damage.

The response to all this has to go beyond party politics. A national, pro-European effort should seek to unite opinion in civic society and mainstream politics, based on three Rs:

  • Resist. We have vocally to oppose what we don't agree with – we have to challenge and controversialise decisions so ‘new norms’ don't materialise. That is why pro-refugee, anti-Trump demos, the Gina Miller case, new newspapers or campaigns against hard Brexit are so important.
     
  • Renew. People with liberal, social democratic views have been losing  arguments on issues such as security, spending, globalisation, identity, migration, integration. We need to renew our policy offer in these areas – we need real alternatives not just raw anger. There is a lot that unites some Tory, Labour, Lib Dem, SNP and Green MPs and activists across all these issues – but the networks to do new thinking have to be created.
     
  • Reorganise. We need a new generation of leaders who can inspire, locally and nationally, from both non-metropolitan and metropolitan neighbourhoods and parts of the country. Campaigns and parties have to put much more effort in to looking for new talent beyond their own organisations and boundaries. We need to hear fresh, authentic voices and end the idea that mainstream politics cannot speak for the majority.

If the centre left does not provide the leadership of this fightback, with Labour at its core, it will not have a future.

Peter Mandelson is a Labour peer, former business secretary and an architect of New Labour.

This article first appeared in the 30 March 2017 issue of the New Statesman, Wanted: an opposition