John Rentoul: The Prime Minister speaks with forked tongue on Europe

David Cameron was juggling last week when he assured Angela Merkel that Britain's future lies 'firmly' within the EU


Poor George Osborne. He has such a reputation as a calculating politician that last week everyone assumed he was up to something. Specifically, everyone assumed that he was promoting his Eurosceptic credentials by edging towards a referendum on Europe, with a view to securing right-wing support for his leadership ambitions.

On this occasion, he was not guilty. He knows that the Conservatives need a referendum on Europe in the same way that they need to split and fight the next election as two separate parties, which would be roughly the same thing.

Far from giving the Better Off Outers what they want, he and David Cameron are trying to fend off the demands for a referendum by saying that they have already promised one, in the hope that no one will notice that the referendum that they have promised is (a) on a different question and (b) not intended to happen.

What they have promised, as Osborne explained on Radio 4's Today programme last Thursday, is a referendum on any "transfer of powers". This is a promise partly addressed to the one-third of Tory voters at the last election who have switched, or who are "seriously considering" switching, to the UK Independence Party, as our ComRes poll found last month. But it is mainly addressed to Britain's negotiating partners in Europe, to deter them from proposing anything that would have to be put to a referendum of the most Eurosceptic nation in the EU.

That is what I mean by saying that the Prime Minister and Chancellor do not intend to hold that referendum. Except that Osborne seemed to go further in his interview. He said that a banking union of the 17 eurozone countries would reshape Britain's relationship with the EU, and that "a reshaped relationship does imply a transfer of powers". That was the point at which the Better-Off-Outers became excited, because he seemed to be suggesting a referendum was likely. I suspect that this was not his intention. In the next sentence, he spoke of requiring "safeguards" for the City of London, which sounded as if a transfer of powers was precisely what he intended to avoid.

I am reading the fourth and final volume of Alastair Campbell's full and unabridged (that is, full and rude about Gordon Brown) diaries, and it recounts mistake after mistake, by ministers or by him, that is overinterpreted by the Kremlin-watching community as a subtle shift of policy. "Would that we were that well organised," Campbell comments bitterly at one point.

Actually, I thought that the most striking thing said by a British politician about Europe last week was said by David Cameron in Berlin: "I see the UK's future as being firmly within the EU." There should be no surprise about this because it has always been his view and, yet, the Starship Enterprise's Spock would protest, "But that it is not logical, captain".

The main argument against a referendum now on the bigger question of Britain's membership of the EU is that we do not know what the EU will look like by the time the votes are counted. So how can Cameron say that he sees our future as being "firmly" within the unknowable future EU?

As the Chancellor implied, the core of the EU is going to change whether we like it or not. We can stop any change that directly affects us, but we cannot stop – indeed, we seem to be encouraging – the eurozone countries going ahead with a political union that would have a huge effect on us anyway.

Cameron and Osborne are urging eurozone members to hurtle towards political union because, they say, that would make the euro work, which would be in our interests, they say, because then euro countries will spend their euros on our exports – insurance policies and pop songs, mainly.

But then we would be members of an outer EU, with a population of 170 million, on the outskirts of the European political union, which would have a population of 330 million. We would be in an arc reaching to Denmark and Sweden and then down through central Europe, on the other side of what used to be the Iron Curtain, to Latvia, Lithuania, Poland (where they don't want to adopt the euro any more: an opinion poll last week found only 12 per cent of Poles were takers), the Czech Republic, Hungary, Romania and Bulgaria. (Not many people know this, but Estonia, Slovakia and Slovenia are already in the eurozone.)

You can see why Angela Merkel is promoting this latest version of the federalist project, the eurozone as a single European country, because Germany would dominate it. What is surprising is that Cameron and Osborne should be promoting it too.

Fortunately, it is not likely to happen. I say this because I do not know of a single serious economist who thinks that the euro can survive in its present form. They all say that it requires a banking union, a much bigger firewall (whatever that is) and, in effect, a single government. Apart, possibly, from the firewall, these are not going to happen.

I can see that it would not be polite for Cameron to lecture the eurozone on why it needs to dismantle its currency. But it does seem remarkable that he and Osborne pretend to be so enthusiastic about creating a core European superstate on our doorstep.

The only way to make sense of this, I think, is that Cameron and Osborne expect the Germans to realise that the euro must break up, and to organise it, so that floating exchange rates will restore prosperity again. But they fear that Germany will insist on trying to make it work, pouring money into Spain, Greece and then Italy and others, and acting as a brake on growth for the indefinite future.

It does seem strange, though, that they should be encouraging Angela Merkel to do the wrong thing in the hope that she will decide by herself that it is not going to work.;

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