David Cameron's hopes for 'new deal' with EU boosted by growing signs Angela Merkel wants new EU treaty

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David Cameron's hopes of getting a "new deal" for Britain from the European Union have been given a boost by growing signs that Angela Merkel wants a new EU treaty.

The German Chancellor is said to want to mark her third and probably final term by enshrining fiscal discipline inside the 17-nation Eurozone in the EU's governing treaties, to protect Germany from future demands to bail out weaker economies.

Although such a treaty might not affect the UK directly, it would require the formal backing of all 28 EU members. That would open the door to Mr Cameron to seek what he has called a "new settlement" for Britain before putting it to the in/out referendum on UK membership by the end of 2017.

British ministers believe the Government's chances of securing the return of some powers from Brussels to London would be enhanced if a new treaty were under discussion. They fear that Mr Cameron's shopping list might be dismissed out of hand if he lacked the bargaining power that a full-scale treaty negotiation would give him.

Ms Merkel, who is still in the process of forming a new coalition in Germany after last month's elections, may reveal her EU treaty plans at a summit of European leaders in December. Final decisions would be taken after next May's European Parliament elections.

However, her plan for legally-binding rules for the Eurozone faces strong opposition from countries including France and Ireland, which would both have to hold a referendum to secure approval for a new treaty. If Mr Cameron made unrealistic demands in the treaty talks, other EU members could go ahead with an agreement short of a formal treaty without Britain, as they did when he vetoed a "fiscal compact" two years ago.

UK ministers are scaling down expectations of how many functions might be "repatriated" amid concern that Mr Cameron's "new deal" might disappoint Conservative Eurosceptics and not win the backing of the public in the referendum.

The Prime Minister has shied away from publishing a list of demands and government sources suggest he is moving towards seeking specific changes to how some EU laws affect Britain rather than the return of large areas of decision-making to the UK, a move that would be opposed by many EU members. The Netherlands has adopted such a tailored approach on the grounds that it is more likely to be successful. The change of tactic would disappoint hardline Eurosceptics. It might mean, for example, Britain seeking changes to the EU's working time directive rather than a complete opt-out the "social chapter" of employees' rights.