Cameron’s entourage is preparing for the euro mayhem to come

A tacit negotiation is under way between Osborne and the Tory right.

David Cameron outside 10 Downing Street.
The surge in Cameron’s poll ratings following the "veto" last December is fondly remembered by the Tories. Photograph: Getty Images.

The word “Eurosceptic” is in danger of losing its meaning. The problem is not a shortage of people to whom the label applies but the dwindling number who can realistically claim to be anything else. What rational witness to the crisis in the single currency and the attendant dithering of continental leaders would not be sceptical?

Political malfunction at the heart of the European Union – the inability of Brussels institutions to organise a response to the crisis – is starting to look ominous in the way that banking malfunction looked sinister in the early stages of the credit crunch. In Downing Street, the prospect of economic turmoil rolling in from across the channel within months, if not weeks, is making long-term strategic calculations feel almost redundant. While the normal hubbub of politics continues, there is a feeling among some of David Cameron’s entourage that things currently reported as momentous – revelations from the Leveson inquiry, for example – will be drowned out by euro-mayhem.

That is also a reason why a bunch of unpopular tax initiatives from the Budget were casually binned in the last week of May. The Treasury was emptying its pockets of unwieldy items before assuming the brace position.

Fringe manias

By contrast, a posse of right-wing Conservative backbenchers sees the emergency as a vindication and an opportunity. They find two of their foes simultaneously weakened: the EU and the “modernising” clique around Cameron that, in opposition, tried to dull the party’s anti-Brussels edge. George Osborne is especially vulnerable. He was meant to be the master of political pyrotechnics before the Budget went off in his face. The Chancellor, feeling the need to shore up his support, is hinting that a European referendum of some kind will be included in the next Conservative manifesto.

This is rocky terrain for the Tory high command. The surge in Cameron’s poll ratings following the veto of a European treaty last December is fondly remembered. There remains also in No 10 awareness of the way loathing of the EU can be seen as part of a complex of unattractive fringe manias. Cameroon strategists want to protect the party’s right flank from harrying by Ukip without signalling to voters who might be floating back to Labour that the Tories are consumed by old obsessions.

So a tacit negotiation is under way between Osborne and the Tory right. He wants their support but without binding himself with detailed policy commitments. The diehard anti-EU MPs do not trust him, believing a pro-Brussels virus is pandemic in Whitehall and all ministers are infected. They want precision about where this referendum chatter is heading.

There is a deadline. A bill approving the formation of the European Stability Mechanism (ESM) – a permanent rescue fund for single currency members – is making its way through parliament and is due for a Commons vote before the summer recess. The Treasury view is that this is a small technical matter. If it registers with Eurosceptics at all, say Osborne’s lieutenants, it should be cause for celebration since it excuses Britain from future participation in eurozone bailouts, disentangling the government from more open-ended commitments made by the last Labour government.

Habitually rebellious Tories are not persuaded. They dislike anything that bolsters EU institutions, and a disruptive reflex kicks in at the sight of European legislation. But serial saboteurs are now saying they might, on this occasion, reward the government for its apparent conversion to the referendum cause. One rabble-rousing MP tells me he would “normally be in the business of mobilising the numbers” against the ESM bill but, pending more clarity on the leadership’s hardening line against the EU, is minded to “cut them some slack”. The truce is conditional: “So far the government has only done the right thing on Europe under fire.”

The partisan opportunities presented by a divisive Commons vote on Europe have not escaped Labour attention but there is disagreement about whether they should be exploited. There is a risk in appearing to play politics with an emergency. Caution dictates that a responsible government-in-waiting should let the ESM bill through. The disadvantage to that approach is that no one gives the opposition credit for such piety, meanwhile a chance to sow discord in the government ranks is missed. One alternative is to table mischievous amendments to foment Conservative rebellion.

Second-class citizens

This dilemma reflects a long-running debate at Labour’s top table. The shadow foreign secretary, Douglas Alexander, advocates the more statesmanlike course. The shadow chancellor, Ed Balls, prefers not to forego tactical ploys to make Cameron squirm. The discussion is suffused with territorial sensitivity about who sets the tone when Labour talks about Europe.

The differences are more about emphasis than direction. The Labour leadership is creeping towards the same conclusion as Osborne –
a referendum asking Britain if it wants to stay in the EU is inevitable. Every conceivable resolution to the single currency crisis, ranging from the euro’s dissolution to its consolidation in tighter political union, will alter the terms of the UK’s engagement with Europe. That settlement will have to be ratified by popular vote.

Osborne’s ideal scenario is that a plebiscite can be deferred until a deal is done preserving all of Britain’s diplomatic clout in Brussels, along with unrestricted access to European markets, but without so many pesky compromises in national sovereignty. The country can then be invited to say “yes” to Europe-lite. But that item – the same delicious taste of free trade with none of the constitution-clogging fat – is not on the menu.

The choice, when it comes, will be between whole-hearted participation in a revamped European project and second-class, observer status. Neither Labour nor Conservative front benches will be comfortable campaigning for either proposition. So instead they stall, fiddle around with short-term tactics and hope, in spite of all historical precedent, that the European Union will evolve in a way that somehow defies all the sceptics.