Two vetoes for the price of one

In Parliament this afternoon, David Cameron gave his statement on last week's EU summit, followed by questions from MPs. The debate was a bit all over the place if we're to be perfectly honest, with the 2.9% increase to the EU's 2011 budget dominating.

The most talked about intervention came from Ed Miliband who said in response to Cameron's alleged cave-in on the EU budget freeze for 2011: “He wished he could come back and say No, No No, but in his case it's a bit more like No, Maybe, Oh go on then.” (apparently a phrase Miliband didn't quite come up with himself).

On actual substance, Chris Heaton-Harris made the most astute observation. He noted that the PM now has two separate vetoes at his disposal: one over Treaty change and one over the EU budget post-2013. Heaton-Harris asked whether Cameron would use the two vetoes independently to achieve EU reform. As we’ve argued before, a twin-track approach to EU negotiations is by far the smartest way to achieve reform in Europe and the restoration of some democratic control over key EU powers.

If the two vetoes are used in parallel but for seperate issues - one for repatriation of powers and the other for concessions on the CAP for instance - we bet anyone (eurosceptics and federalists alike) that the Coalition government will get at least one game-changing concession in return.

The Coalition could even get other member states along for the ride if it's confident and strategic enough. After all, Merkel has given us a great example for how to do it.

Unfortunately, in response to Heaton-Harris and also earlier in the debate, Cameron hinted he would pass up his veto over the treaty change, effectively giving EU partners a two-vetoes-for-the-price-of-one deal.

Hopefully this isn't the end of the story though, as there's still much to play for before Treaty changes are agreed. But MPs need to get their line of argument in order or the Coalition might well go for the do-nothing option.

For Cameron to use the twin-vetoes separately but in parallel, is surely what backbenchers in favour of EU refom should be pushing for?

From never-never land to reality; Angela Merkel takes care of business

Before yesterday’s European Council meeting, the European press were predicting that the Franco-German agreement made in Deauville might as well have been made in “never-never land”. Member states will resist and President Sarkozy and Chancellor Merkel will stand “isolated”, they said.

And even as late as this week, UK-based EU observers were in the news repeating that a new EU treaty is virtually impossible, only a year after the Lisbon Tretay entered into force.

Open Europe has argued for months that Merkel means business in her drive for Treaty change - and that she could achieve it if she puts down her foot (the exposure of German taxpayers to sub-prime eurozone loans is one clue, the need to address potential challenges in the German Federal Court is another).

And sure enough, today the German press is buzzing. FT Deutschland’s headline reads, “Merkel wins at Euro-Poker”. Die Welt writes, “Merkel asserts her will in Brussels”. Spiegel chimes in with, “Europe comes up against the Iron Chancellor”.

In a commentary in Handelsblatt Thomas Ludwig writes that, “Merkel and the German government held their nerve at summit negotiations and ultimately had the better argument on their side”. He also congratulates the German Chancellor for “being hardheaded” and said it will “pay off for the eurozone in the long-term”.

Handelsblatt also reports that Merkel advocated the suspension of voting rights for members who flout budget rules purely “for tactical reasons”. In reality, her primary aim was to push for a permanent crisis mechanism for the eurozone, which most member states have agreed is the best way forward. In other words, she established an outlier for member states to reject, pavign way for a deal on what she really wanted.

Merkel just gave her EU colleagues a lesson in how to get things done in Europe - is Whitehall taking note?

Has Cameron underplayed the UK's hand in Europe?

Over at Conservative Home, we examine how David Cameron is getting on in Brussels - the performance so far is a mixed bag, but there's a clear risk that he has underplayed the UK's hand in the negotiations.

Meanwhile, German media praises Angela Merkel's "poker skills". She has now achieved backing from EU leaders, in principle at least, for changing the Treaty in order to introduce a permanent crisis mechanism for the eurozone.

Cameron gives way on new treaty for 2.9% budget increase?

Die Welt is reporting that Cameron has done a deal with Merkel on treaty change.

The article notes that Merkel signed a letter penned by Cameron stating that the Council would not accept a budget increase higher than 2.9% in negotiations with the European Parliament. In return, Cameron will back Merkel's demand for a treaty change, reportedly assuring Merkel that he will secure the passage of a new treaty through the UK Parliament without a referendum.

As we argued earlier today, even if Cameron were to achieve a freeze to the EU budget, there’s nothing stopping MEPs and other member states from pushing through a substantial increase in 2012 or 2013 to make up for it.

If the reports are true, Cameron may well have severely underplayed the UK's hand, missing the opportunity to get real concessions in return for treaty change. A one-year 2.9% budget increase certainly doesn't cut it.

If true, Cameron has just given away the greatest leverage the UK has had in EU negotiations in a very, very long time...

How Cameron should play his cards in Europe

Over at the Spectator's Coffee House blog, we take a look at how David Cameron should approach today and tomorrow's EU summit - and how he should play his cards in negotiations in Europe moving forward.

We argue,

The British media woke up this week, realising that Europe still exists. As David Cameron travels to Brussels, questions loom over what, exactly, he can achieve in Europe – at this summit, and more importantly, moving forward.

Much of the commentary surrounding the summit has focussed on the increase to the EU’s 2011 budget, which Cameron is fighting. And for good reason. It’s insane that Britain – or any other net contributing state – should be forced to accept any increase to the EU budget, at a time of tough austerity at home.

Cameron has spent considerable time talking up the negotiations on the budget increase, so he may have an ace up his sleeve to achieve a cash freeze tomorrow or in the coming weeks. But a 2.9% hike is not unlikely, meaning that an extra £430 million would be added to UK taxpayers EU bill – or even more once the European Parliament has had its greedy hands on it.

However, as outrageous as it is, the annual budget increase is only a side show in a far bigger act.

Even if he were to achieve a freeze to the EU budget, there’s nothing stopping MEPs and other member states from pushing through a substantial increase in 2012 or 2013 to make up for it. The EU budget is negotiated in seven-year periods (though that can vary), with minor adjustments being made on an annual basis. Sadly, negotiations over this budget period have already been lost – courtesy of Tony Blair in 2005.

So the bigger prize – which may or may not be discussed in corridors at the summit – is clearly a reduction in the size of the budget from 2014 onwards. Cameron has rightly stated that this is his priority moving forward.

But here Cameron could be committing a strategic mistake. The temptation is to try to ask for concessions on the post-21014 EU budget, in return for supporting Merkel’s repeated calls for a Treaty change to fix the eurozone.

Thing is, the UK already has a veto over the negotiations on the post-2014 budget. If the UK refuses to agree, an effective cash freeze will be achieved anyway as the previous budget will be carried over. Secondly, member states are desperate to get rid of the UK’s rebate from the EU budget – in itself a powerful bargaining chip.

So if Cameron trades budget concessions for Treaty change, he will effectively be giving his EU partners two for the price of one.

A better way forward for Cameron is to horse trade on the EU budget and possible Treaty change separately.

Despite strong opposition from EU leaders, German Chancellor Angela Merkel continues to push for a Treaty change to fix the eurozone. And she won’t cave in easily.

As we’ve argued before, Cameron should back Merkel’s calls for Treaty change in return for repatriating powers to Britain. It Treaty change actually materialises, the whole package can then be put to a public vote in a genuine referendum on EU reform. Many Tory backbenchers are now picking up on this idea as well.

Cameron and Merkel will meet on Saturday night over dinner to discuss the way forward for the EU. The Prime Minister must think carefully about how to use the unusually fluid European situation to put Britain’s relationship with the EU on a more sustainable path.

The scope for a new Anglo-German grand bargain is greater than in a long-time. But for Cameron to give away his hand this early would be a serious mistake.

Merkel refuses to fold

German Chancellor Angela Merkel is a tough cookie.

Sandwiched between Deauville and tomorrow's EU Summit, Dr. Merkel took to the podium today to defend the controversial pact with President Sarkozy on economic governance in the eurozone that has left both German politicans and EU leaders incensed (but in different ways).

Addressing the Bundestag this afternoon, a firm Merkel said both President Sarkozy and herself will relentlessly insist on a "culture of stability" at tomorrow's European Council summit. She stressed the necessity of taking "precautions today for dealing with future crises" in the eurozone.

Such precautions, she said, will simply have to include a Treaty change. Merkel stated that the measures taken earlier in the year to bail out Greece were "unavoidable" but did not provide long-term solutions. She insisted on a new, robust and legally unassailable "crisis management framework" anchored firmly in a new EU treaty; a move that she admitted is "ambitious". But she confidently asserted that, for the EU

success will only come with a change to the treaty...improvement is always possible, even if the road is rocky.

Presumably responding to Luxembourgish Foreign Minister Asselborn's and others' sneer that Europe does not work with only a "two-stroke engine", the German chancellor said, "the Franco-German union is not everything in the EU, but, without a German and French union, it is not much."

Tomorrow's summit could be really interesting...

Reding vs. Lellouche: Round Two

Following the infamous quarrel over the Roma deportations, EU Justice Commissioner Viviane Reding isn't exactly the French government's préférée.

But, it seems, there is one person in Paris who really can't stand the Commissioner: French Europe Minister Pierre Lellouche. The two are now at it again. This time the disagreement concerns the Franco-German proposal to change the Lisbon Treaty to allow struggling eurozone countries to default.

In an interview with Die Welt, published today but with extracts circulating already yesterday, Ms. Reading said,

It seems to me completely irresponsible to put on the table these chimeras on new Treaties.

Dismissing as 'completely irresponsible' a proposal coming from the two most powerful eurozone governments is pretty strong stuff for a Commissioner. But in case someone still didn't get the message, Viviane added,

Decisions [in the EU] are not taken in Deauville [the small village in Lower Normandy where Merkel and Sarkozy agreed on treaty change last week], but at 27 and by unanimity. France and Germany are the two countries who scuttled the first version of the Stability and Growth Pact in 2004 and 2005. The euro has undergone a severe crisis since, but it seems like someone has not yet drawn the lesson [...] We must stop destroying what the EU institutions propose.

Lellouche - himself not known for shying away from hard talk - was quick to respond. Speaking in the French Senate yesterday, he said,

When you are a European Commissioner, and moreover a Vice-President of the Commission, is it conceivable that you call the President of the French Republic and the Chancellor of the Federal Republic of Germany 'irresponsible'?

Fair enough, but Lellouche wanted to take one last jibe,

Frankly, the words used by this Commissioner [he avoids calling Ms. Reding by name, like Sarkozy did during his row with Barroso last month] to denigrate the Franco-German proposals are unacceptable. They are cut from the same cloth as the insulting tone - which I will not forget - used against France during the polemic she herself used on the Roma question.

We're awaiting round three.

How should the UK government respond to EU Treaty change?

We take another look at this question over on the Spectator's coffee house blog. With the risk of sounding repetitive, we argue,

Rather than instinctively reaching for the veto, David Cameron should back Merkel’s demands, in return for the repatriation of powers to the UK, along the lines of the original Tory election manifesto. This package could then, possibly, be put to a public vote, and be turned into a genuine referendum on EU reform. The net effect of a new EU treaty would then be fewer powers for Brussels and more for Westminster.

On his blog, the ever-insightful Charles Crawford also has some very interesting things to say about German calls for EU treaty change and the nature of EU diplomacy more generally. He argues,

Do Germany's leaders really think that they can force through this time round a "narrow" Treaty change which gives them enough of what they want by way of financial protection and does not open up all sorts of other clamorous demands?

Or do they know that that is more or less impossible, hence they are pushing for Treaty changes as part of a wider agenda aimed at deliberately prompting a manageable (they hope) mini-crisis which will allow them to redefine the way the European Union works, but on (mainly) German terms? If that means wielding a fierce Teutonic axe on many beloved EU schemes and letting other countries squeal, so be it.

What, I wonder, is the government in London making all this?

In principle this situation represents a huge opportunity for cynical but pragmatic British influence aimed at forcing out great quantities of EU rubbish -- and cutting the bill to British taxpayers.

Question is, have the Coalition folks put on their thinking caps?

Do watch this space...

Germany wins French backing for EU Treaty change

As we anticipated in our previous post, it appears as if Germany has won French backing for a change to the EU treaties in return for greater flexibility on sanctions for eurozone countries which run excessive deficits.

France and Germany have agreed that the Lisbon Treaty should be changed by 2013 in order to:

• Set up a "robust crisis resolution mechanism" for the eurozone, which presumably includes a mechanism for an orderly default procedure for countries that go bust;
• Introduce political sanctions for rule-breakers, including the temporary withdrawal of voting rights within the Council.

The taboo of another round of Treaty change negotiations has now officially been broken. This is potentially huge - and throws up a number of interesting questions for eurozone and non-eurozone countries alike, not least the UK.