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The accidental exit

David Cameron may have inadvertently set Britain on a path out of the EU

12 January 2013

9:00 AM

12 January 2013

9:00 AM

If Britain leaves the European Union, historians will say that 30 June 2012 was when the great exit began. That day, David Cameron was due to write an article for the Sunday Telegraph and his advisers were frantic. It was a last-minute idea, to balance out some loose talk from the Prime Minister at a Brussels press conference. The piece was being drafted by committee and on the hoof. Aides stood at railway stations and in airport lounges emailing a line here and a tweak there. The result was Cameron’s gnomic pledge that ‘for me the two words “Europe” and “referendum” can go together’.

What did it mean? Those who inquired were asked to show patience. The Prime Minister would have more to say in the autumn. Thus began the long wait for Cameron’s big Europe speech.

But events kept getting in the way. The party conference was ruled out because it would make the Tories look obsessed with Europe. And it would be impolitic to give a major speech before the summit on the EU Budget. So ‘autumn’ became ‘before Christmas’. The goose got fatter, but still no speech came.

On Monday, the Prime Minister told people to wait for ‘the speech in January’. It is not yet written. But I understand that Cameron now does know what he wants to say. He will commit to keeping Britain in the single market, rejecting the calls by many in his party for a Swiss-style free trade agreement. He’ll even make the case for expanding the single market into other areas and — possibly — giving Brussels more authority to enforce its rules. This, however, will mean that most of the irritations of EU membership (including those pesky directives) will remain. There’ll be no relief for ministers who feel emasculated by EU procurement rules, no escape from regulations aimed at the heart of the City of London. Britain will only be able to open up its markets to the new economies of the east at a pace set by Brussels. This is, under Cameron’s plan, the price of being part of the world’s largest single market.

So what does he want in exchange? His speech will not set out a shopping list; he feels it makes no sense to show his hand too soon. Harold Wilson, one Cameron confidant recalls, ‘set out six things he wanted from the renegotiation and only got one of them’. But most things outside the single market and foreign-policy co-operation are up for consideration. Regional spending and the working time directive are two early candidates for repatriation.

Next, the timing. The pledge to renegotiate would be included in a 2015 Tory manifesto, and if they won the election outright that year, the process would start soon afterwards. Cameron will say that when the renegotiation is complete, probably around 2018, he’ll put the results to the British people. We’ll be able to vote to stay in on the new terms — or leave. Cameron plans to campaign for staying in, and is confident of victory. The idea of an exit, he thinks, would panic business.

As soon as Cameron has sat down after his speech — and probably well before he stands up to deliver it — a Tory row over Europe will erupt. The ‘Better Off Out’ crowd will denounce him. MPs and donors will be spitting at the prospect of the party campaigning to stay in the EU in a referendum. Many MPs will complain that with the Ukip threat looming, the Tories have no chance of winning a majority without some kind of referendum in this parliament, even if only one seeking a mandate for renegotiation. Others will argue that the suspicion left by the ‘cast-iron guarantee’ of a referendum means that the vote has to be legislated for in this parliament, a solution being pushed by an organised group of Tory backbenchers.

But the most dangerous criticism will be that by ruling out a so-called ‘Brexit’, Cameron has undermined his own negotiating position, perhaps fatally. This is a view taken by an increasing number of Cabinet ministers. If Cameron is going to persuade a majority of his party to campaign for Britain to remain in the EU (there is as yet no majority for that position), he must bring back terms of membership very different from Britain’s current ones. Exempting the NHS from the working time directive, as William Hague has suggested, or limiting residency rights to those with a job or other means of support, would be the bare minimum. If that were all Cameron could obtain, at least nine Cabinet members would be inclined to vote ‘out’ in the referendum.

Not every Tory Eurosceptic would campaign for an ‘out’ result; several would bite their tongues out of loyalty or ambition. But it is hard to imagine the Maastricht rebel Iain Duncan Smith campaigning to keep Britain in the EU. Or Owen Paterson, the Environment Secretary, who told this magazine last year: ‘I want my country back’. Even Michael Gove, one of Cameron’s closest Cabinet allies, would be hard pressed in these circumstances to make the case for Britain continuing to pay its dues to Brussels. It’s likely that most Tory MPs would feel the same way.

So Cameron’s speech may end up leaving his party more deeply split than at any time since the repeal of the Corn Laws. He might have to accept that the only way he can reconcile the Conservatives to EU membership is by threatening to leave.

The PM, though, is all too aware of what he is getting himself into. A Tory who has known Cameron for years observes, ‘He used to see the Europe issue as an opportunity not a threat. He now, though, sees it very much as a threat.’ One of those involved in plotting European policy concedes that ‘there’s risk in any direction he steps in’.

The experience of government has made most Tory ministers more Euro-sceptic rather than less. At every turn, they are told by officials what they can’t do thanks to various EU regulations. ‘Day-to-day British government now happens to be in Brussels,’ one secretary of state told me recently.

Even within the Prime Minister’s close circle, many now favour outright withdrawal. Steve Hilton, his senior adviser, now sojourning in California, came to despise the EU even more than he did the civil service. Oliver Letwin, who occupies the grandest office in 9 Downing Street, is so frustrated by Brussels regulations that he’d like Britain out. But others around Cameron don’t share these views. As one minister puts it, ‘There might be only a few pro-Europeans left in the Tory party. But half of them work in Downing Street.’

This statement is aimed at Ed Llewellyn and Patrick Rock, two powerful No. 10 advisers who worked in Brussels for the wet Chris Patten when he was a European Commissioner. This makes them unsound in the eyes of Tory Eurosceptics. The news that Llewellyn is keeping a close rein on the drafting process for this speech and liaising with key figures, including some Eurosceptic backbenchers, has hardly reassured them. But one of Cameron’s circle who favours a radical renegotiation says that Llewellyn ‘has his views, but he isn’t the kind of guy to enforce those on others’. My source suggests that, if you are looking for the reason why Downing Street is wary of Euroscepticism, then the Cabinet Secretary Sir Jeremy Heywood is your man.

William Hague is also less Eurosceptic than many imagine. After a Cabinet meeting in October, ministers saw the Foreign Secretary take Michael Gove aside and upbraid him for suggesting that Britain should threaten to leave the EU. Unlike almost every other Tory minister, he has found the experience of working through the EU more pleasant than he expected. He purrs about its ability to amplify Britain’s voice in the world. One Liberal Democrat minister observes that ‘Hague has a commendably sensible approach to working with our European partners.’

The other great influence on Cameron, as ever, is George Osborne. The Chancellor continues to believe that the single market does more good to the British economy than harm. But just as important is his political view; he is the electoral strategist as well as the Chancellor. Osborne thinks the Tories couldn’t win a referendum to leave.

Osborne calculates that business leaders would line up against any ‘out’ campaign and that the public would side with them rather than the politicians. Also, the Tory Eurosceptics remain divided, each seeming to have a slightly different vision for Britain’s future relations with Europe. They are leaderless — the biggest single gap in the British political market today. Boris Johnson flirted with taking on the role. But he retreated quickly when the City made clear what it thought of the prospect of a British exit.

But the real reason for Cameron’s confidence is his belief that Angela Merkel will help him. The EU budget negotiations and the protections for the non-eurozone, single market countries in the banking union are cited by Downing Street as evidence of Germany’s willingness to accommodate Britain’s concerns. One of those tasked with drawing up Cameron’s negotiating position tells me that ‘Merkel does now understand that Cameron is trying to find a way that Britain can stay inside the EU that the Tory party and the public are satisfied with.’

The assumption is that the Germans will help because, in the words of one senior minister, ‘They’re petrified of being left alone with the French.’ So Cameron’s great gamble is that Merkel fears that, without Britain, the EU would be a far more dirigiste, protectionist place. As Hague pointed out in a recent speech in Berlin, there’s no majority for economic liberalism inside the eurozone.

But Downing Street needs to be careful. It has misread the signals from Berlin before. In November 2011, Cameron returned from a lunch with Merkel confident that she was sympathetic to his predicament. In the event, she stitched up a deal with Sarkozy against him and he had to threaten a veto. It may be logical for Germany to do everything to keep Britain in the EU. But European politics is not always driven by logic.

Any significant agreement that Cameron and Merkel reach would need the unanimous support of all 25 other member states. All it takes is for one state to veto, and the deal would be off, making a British ‘out’ vote a distinct possibility.

It is worth remembering that Britain has not always excelled at European brinkmanship. Henry VIII never intended to break with Rome and quit the jurisdiction of that other European project, the Roman Catholic Church. He assumed that it would accommodate his needs rather than lose so powerful a realm. Rome’s intransigence left him with no option but to leave. Cameron might find himself in a similar position.

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