There is devilish detail in the new euro pact

Forget use of EU buildings, the threat is members of the new fiscal union cooking up deals that affe

The issue of David Cameron's "phantom" European veto has fallen out of the headlines pretty quickly, ousted from the agenda by the news of Fred Goodwin losing his Knighthood. (The announcement landed yesterday, by remarkable coincidence, within moments of the Prime Minister getting a bit duffed up in a Commons statement on Monday's European summit and after a weekend of bad headlines around banker bonuses.)

Conservative Eurosceptics, however, will not forget how the gesture of anti-Brussels defiance they so celebrated in December has turned, as they see it, into a supplicant bow to the forces of continental integration. It doesn't help that the Lib Dems are conspicuously pleased by Cameron's restoration of normal diplomatic service with regard to the EU.

As I wrote last week, upholding the spirit of the "veto" to the satisfaction of Tory back benchers and doing what it takes to secure British influence in European Union diplomacy were mutually exclusive demands. In fact, it seems, Cameron has done neither.

The sceptics have concentrated on the Prime Minister's failure to prevent signatories to the new Fiscal Union (FU) treaty using EU institutions to enforce their agreement. That was always a bizarre and unrealistic fixation. If Britain's position is to support other countries pursuing their plan, why would we sabotage the obvious mechanism for making it work. (There is an argument that says Britain should be opposing FU on the principle that any countries surrendering control of their budgets to a central European authority and insisting on choreographed austerity in the middle of a downturn is bonkers - but that is a different matter and definitely not government policy.)

The real issue for concern, as far as British influence is concerned, is not the use of institutions by the FU members, but the prospect that they will crowd the UK out in discussions of the single market. This is the problem that euro-wonks refer to as "caucusing" - the danger that plans will be hatched, positions agree, alliances cemented within the FU members that can then be presented at European Council meetings as faits accomplis.

This is not a threat for today or even tomorrow, but it is clearly a problem and potentially a very big one. If Britain struggles to build alliances in the Council it can get outvoted on things that matter deeply to our economy - on tax and regulation policy, for example. In the past, this hasn't happened too often, but the new FU structures, including regular summits (combined with some ill will generated by the whole "veto" episode) make caucusing much more likely.

Thus, as I have written before, the eurosceptic prophecy is self-fulfilling. Marginalisation diminishes influence leading to bad deals, suspicion of a conspiracy and more marginalisation. Onward towards the exit. Cameron told a press conference in Brussels that the government would "take action" if there was any sign of the FU members "encroaching on the single market". And that he would watch out for such encroachment "like a hawk". He didn't say what action would or could be taken.

The main safeguard in the draft fiscal union treaty appears to be in the preamble:

NOTING, in particular, the wish of the Contracting Parties to make more active use of enhanced cooperation, as provided for in Article 20 of the Treaty on European Union and in Articles 326 to 334 of the Treaty on the Functioning of the European Union, without undermining the internal market, as well as to make full recourse to measures specific to the Member States whose currency is the euro pursuant to Article 136 of the Treaty on the Functioning of the European Union, and to a procedure for the ex ante discussion and coordination among the Contracting Parties whose currency is the euro of all major economic policy reforms planned by them, with a view to benchmarking best practices.

Yes, I know that isn't even a sentence - such is the language of European treaties. Anyway, in something approximating English, this seems to be saying that the FU treaty is recognised as a special deal between some but not all existing EU member states - "enhanced cooperation" - for which a legal framework already exists in the much revised founding treaties of the EU.

The key passage on "enhanced cooperation" in the Treaty on the Functioning of the European Union says:

Such cooperation shall not undermine the internal market or economic, social and territorial cohesion. It shall not constitute a barrier to or discrimination in trade between Member States, nor shall it distort competition between them.

In other words, cooperation between FU members mustn't formally skew the single market against the non-FU members (Britain and the Czech Republic). In practice, however, some or all FU members could end up deciding on things that would subsequently be put to a full EU Council and comfortably outvote Britain.

To what extent this will happen and what Cameron could do about it are the real questions that should be asked about the changing nature of Britain's status within the EU after Monday.

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

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In the row over public sector pay, don't forget that Theresa May is no longer in charge

Downing Street's view on public sector pay is just that – Conservative MPs pull the strings now.

One important detail of Theresa May’s deal with the Democratic Unionist Party went unnoticed – that it was not May, but the Conservatives’ Chief Whip, Gavin Williamson, who signed the accord, alongside his opposite number, the DUP MP Jeffrey Donaldson.

That highlighted two things: firstly that the Conservative Party is already planning for life after May. The deal runs for two years and is bound to the party, not the leadership of Theresa May. The second is that while May is the Prime Minister, it is the Conservative Party that runs the show.

That’s an important thing to remember about today’s confusion about whether or not the government will end the freeze in public sector pay, where raises have been capped at one per cent since 2012 and have effectively been frozen in real terms since the financial crisis.

Michael Fallon, the Defence Secretary, signalled that the government could end the freeze, as did Chris Grayling, the Transport Secretary. (For what it’s worth, Gavin Barwell, now Theresa May’s chief of staff, said before he took up the post that he thought anger at the freeze contributed to the election result.)

In terms of the government’s deficit target, it’s worth remembering that they can very easily meet Philip Hammond’s timetable and increase public sector pay in line with inflation. They have around £30bn worth of extra wriggle room in this year alone, and ending the pay cap would cost about £4.1bn.

So the Conservatives don’t even have to U-turn on their overall target if they want to scrap the pay freeze.

And yet Downing Street has said that the freeze remains in place for the present, while the Treasury is also unenthusiastic about the move. Which in the world before 8 June would have been the end of it.

But the important thing to remember about the government now is effectively the only minister who isn’t unsackable is the Prime Minister. What matters is the mood, firstly of the Cabinet and of the Conservative parliamentary party.

Among Conservative MPs, there are three big areas that, regardless of who is in charge, will have to change. The first is that they will never go into an election again in which teachers and parents are angry and worried about cuts to school funding – in other words, more money for schools. The second is that the relationship with doctors needs to be repaired and reset – in other words, more money for hospitals.

The government can just about do all of those things within Hammond’s more expansive target. And regardless of what Hammond stood up and said last year, what matters a lot more than any Downing Street statement or Treasury feeling is the mood of Conservative MPs. It is they, not May, that pulls the strings now.

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.

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