Andrew Grice: The EU genie is out of the bottle and can only cause Tories trouble

Inside Westminster

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The Independent Online

For more than a year, it was the dog that didn't bark. Europe, the issue that divided and destabilised the Thatcher and Major governments, was firmly back in its box and David Cameron had reason to think it would stay there.

The leader who told his party to stop "banging on about Europe" because it turned off the voters stopped all but hard-core Conservative Eurosceptics banging on about it. How things have changed. The convulsions in the eurozone threaten to divide another British government. This crisis is so big that it will change Britain 's relationship with the European Union – and could reshape domestic politics.

Events are moving so fast that no one knows where they will end. The ranks of the Tory sceptics have been swollen. Ministers groan as the latest twists in the Greek tragedy play out on the live TV channels.

They know that Britain's destiny is at stake too. In some ways, ministers only have themselves to blame. If the Treasury had received £100 every time a minister blamed Britain 's anaemic growth on "the crisis in the eurozone", it would knock a big hole in the deficit.

The truth is more inconvenient, since our home-grown austerity package has surely played a big part. But the euro-bashing has emboldened the Tory sceptics. The wind is in their sails. They are enjoying this crisis, even though it could inflict huge damage on the UK.

Sensible Tory ministers fear the consequences. No one is making a positive case for EU membership. "It is no longer mad to think we could end up with the same status as Norway", one told me grimly. Although the Europhobes would love downgrading our relationship to a free-trade zone, we would have little or no say over the rules under which it operated.

To his credit, Mr Cameron has kept a seat at the top table in the past 18 months by wooing Angela Merkel and Nicolas Sarkozy. But, however the Greek drama ends, Britain 's influence is going to be diluted. The inevitable fiscal union among the euro countries will push the UK into the outer zone. British ministers fear the 17 eurozone nations will form a "caucus" which fixes the key decisions before they go to all 27 EU members.

Brave talk about Britain heading the 10 second-division teams is just that; seven are committed to joining the euro. Whatever pledges are made not to exclude the "outs", the reality is that many of the rules affecting the single market, the City of London and British industry could be decided by the 17, who might not exactly have UK interests at heart.

Similarly, the Europhobes' rising hopes that an EU treaty negotiation will agree their much-vaunted "repatriation of powers" to the UK may prove wide of the mark. For the hardliners, failure in such a negotiation is a fast track to the EU exit door. Sceptics are dreamers who don't understand that the other 26 nations would never allow Britain the competitive advantage of opting out of more employment laws. Remember they would have to secure domestic approval for a new treaty in a referendum or parliamentary vote.

One person who does understand this is Nick Clegg as a former MEP and European Commission official. He is happy to talk about a more realistic "rebalancing" of the powers but knows that "repatriation" is highly unlikely to happen on the scale demanded by the sceptics. Despite his image in the right-wing press as a Euro-federalist, the Liberal Democrat leader would back reforms on the way EU rules on employment and fisheries, seeing them as more attainable than a wholesale re-negotiation.

The crisis has risks for all three party leaders. Mr Clegg could become a convenient scapegoat for a Prime Minister who has to keep his backbenchers at bay. "We would have liked to do more to grab back powers but those pesky Lib Dems threatened to end the Coalition," the argument would run.

Labour cannot afford to crow about the Government's EU woes. There is a risk of Ed Miliband being caught on the wrong side of a new dividing line in British politics. "We cannot oppose a referendum on the grounds the British might vote to leave the EU," one Shadow Cabinet member said.

But Mr Cameron has the biggest headache. Despite the current frenzy, Europe is nearer the bottom than the top of voters' priorities. "Banging on about Europe" might raise Tory morale but it won't create the economic growth Britain needs. Nor will the "eurozone crisis" provide an adequate excuse when the voters judge the Government on its own record in 2015.