GRAND BARGAIN EMERGING ON EUROPE AS GERMANY ADJUSTS TO CAMERON VICTORY / THE TELEGRAPH

Grand bargain emerging on Europe as Germany adjusts to Cameron victory

'Everybody is very aware that Britain is the next big problem on the horizon. The mood is that we’ve got to save the British from themselves,' says Friends of Europe

By Ambrose Evans-Pritchard

5:58PM BST 21 May 2015

Photo: Alamy

Germany has opened the door to a grand bargain and possible treaty changes to prevent Britain pulling out of the European Union, a risk deemed calamitous for German interests and for the long-term stability of the EU.

“We have a huge interest in the UK remaining a strong and engaged member,” said Wolfgang Schäuble, the German finance minister.
 

Mr Schäuble said Berlin is determined to find some way to combine its own drive for deep reforms of the EU system with Britain’s particular demands.
 

“We will try to move in this direction, possibly through agreements that would later be incorporated into treaty changes. There is a big margin of manoeuvre,” he told the French newspaper Les Echos and the Wall Street Journal.
 

The shift in policy comes as political leaders across Europe wake up to the stark reality of a British referendum on EU membership as soon as next year following David Cameron’s shock victory in the elections this month.

“Everybody is very aware that Britain is the next big problem on the horizon. The mood is that we’ve got to save the British from themselves,” said Giles Merritt, head of the Friend’s of Europe think tank in Brussels.

“The Germans realize that they have to do something to stop this becoming a ‘Britain-alone’ drama and move it onto more constructive ground. They are trying to defuse a confrontation before Cameron starts it, because he does have a habit of coming to summits and saying all the wrong things in the wrong tone of voice,” he said.

Mr Schäuble has invited George Osborne to Germany to thrash out possible areas of compromise, building on the close entente between the two pro-austerity conservatives. The Chancellor will play the lead role in the coming negotiations on EU membership terms.

Stephen Booth from Open Europe said the faint outlines of a “grand bargain” are starting to emerge, with three blocs of states each securing some of what they want: the German-led hawks gain more powers to police budgets; the French-led social bloc unlocks more investment; and the non-euro ‘outs’ – chiefly Britain, Sweden, Denmark, and Poland - secure a new dispensation that recognizes their different status and prevents hostile stitch-ups by the eurozone.


Two finance ministers met at a eurogroup meeting in Brussels earlier this month


While the Government has yet to lay down its precise demands, the broad contours are by now well known. The list includes a clamp-down on benefits for EU migrants, an opt-out from “ever closer union”, safeguards for the City, guaranteed access to the single market for the 'outs', an end to protectionism in services, and powers for national parliaments to issue “red cards” on EU laws.

Most of these are goals are achievable. The EU’s creative lawyers have a knack for crafting ways to meet the needs of Europe's exasperating political geometry.

Mr Cameron has gone quiet on demands for wholesale repatriation of powers or for a whittling down of the ‘acquis’ – the EU’s vast corpus of directives and regulations – knowing that both are anathema for Germany.

“It looks as if they have stopped tilting at windmills and are keeping their demands moderate. They know that repatriation is not on,” said Charles Grant, director of the Centre for European Reform.

Mr Cameron is already under huge pressure from business to find a viable compromise before matters get out of hand. Airbus and Deutsche Bank have both threatened to review their operations in Britain if the country votes to leave the EU, while Vodafone has warned of commercial damage.
 
Paul Kahn, the head of Airbus UK, said ‘Brexit’ would have “enormous ramifications”, warning that the prospect is already causing serious alarm at the group’s European headquarters in Toulouse. The company employs 16,000 people in the UK, and supports much larger numbers indirectly through contractors.


Mr Grant said Britain could be offered an international treaty outside the EU structure, the formula used for Denmark’s opt-outs from the euro in the early 1990s. “This would avoid the complicated process of ratification by all 28 states. It would look solemn and binding but would really be just a protocol. It could then be included in the EU treaties later,” he said.

Mr Grant said the Germans remain extremely reluctant to start full-blown EU treaty talks, fearing that the southern European states would seize on the talks to push for an end to fiscal austerity. “They simply don’t trust the French and the Italians on budgets,” he said.

Denis MacShane, the former Europe minister now at the financial forum OMFIF, said Britain need should be careful not to rely on Germany to ram through a deal, neglecting other countries with strong minds of their own.

“People elsewhere – not just in Paris and Brussels – are frustrated about being taken for a quantité négligeable (lightweights) by arrogant British negotiators. For better or for ill, the EU is a system where the institutions matter, as do all member states, large and small. Even if Merkel is the dominant force, she does not always get it her way,” he said.

Mr Merritt said France may be the pivotal player in this elaborate diplomatic dance. The French elites are afraid that France will lose lose a valuable counter-weight to German domination if the British leave, but right now they have more pressing matters to worry about - the meteoric rise of Marine Le Pen's Front National,

“The fear is that any concession to the UK will set off political contagion by showing that the EU can be blackmailed by anti-Europeans.” he said.

Mr Cameron is about to walk through a political minefield of daunting complexity.