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

Photo: Getty
Show Hide image

Ignored by the media, the Liberal Democrats are experiencing a revival

The crushed Liberals are doing particularly well in areas that voted Conservative in 2015 - and Remain in 2016. 

The Liberal Democrats had another good night last night, making big gains in by-elections. They won Adeyfield West, a seat they have never held in Dacorum, with a massive swing. They were up by close to the 20 points in the Derby seat of Allestree, beating Labour into second place. And they won a seat in the Cotswolds, which borders the vacant seat of Witney.

It’s worth noting that they also went backwards in a safe Labour ward in Blackpool and a safe Conservative seat in Northamptonshire.  But the overall pattern is clear, and it’s not merely confined to last night: the Liberal Democrats are enjoying a mini-revival, particularly in the south-east.

Of course, it doesn’t appear to be making itself felt in the Liberal Democrats’ poll share. “After Corbyn's election,” my colleague George tweeted recently, “Some predicted Lib Dems would rise like Lazarus. But poll ratings still stuck at 8 per cent.” Prior to the local elections, I was pessimistic that the so-called Liberal Democrat fightback could make itself felt at a national contest, when the party would have to fight on multiple fronts.

But the local elections – the first time since 1968 when every part of the mainland United Kingdom has had a vote on outside of a general election – proved that completely wrong. They  picked up 30 seats across England, though they had something of a nightmare in Stockport, and were reduced to just one seat in the Welsh Assembly. Their woes continued in Scotland, however, where they slipped to fifth place. They were even back to the third place had those votes been replicated on a national scale.

Polling has always been somewhat unkind to the Liberal Democrats outside of election campaigns, as the party has a low profile, particularly now it has just eight MPs. What appears to be happening at local by-elections and my expectation may be repeated at a general election is that when voters are presented with the option of a Liberal Democrat at the ballot box they find the idea surprisingly appealing.

Added to that, the Liberal Democrats’ happiest hunting grounds are clearly affluent, Conservative-leaning areas that voted for Remain in the referendum. All of which makes their hopes of a good second place in Witney – and a good night in the 2017 county councils – look rather less farfetched than you might expect. 

Stephen Bush is special correspondent at the New Statesman. He usually writes about politics.