It is becoming increasingly clear what the Conservative party expects of its Prime Minister. If he is going to agree to 17 eurozone countries pushing ahead with the Franco-German plan for fiscal union, he needs to secure a new deal for Britain in exchange.
Just what this new deal should look like is a matter of intense debate in Conservative circles. If France and Germany turn the eurozone into a ‘fiscal union’, what does that mean for Britain’s standing in the European Union? At the weekend, Iain Duncan Smith suggested that the nature of the EU would change so much that a referendum would be necessary. No. 10 quickly ruled that out. Cameron confided to Cabinet colleagues on Monday that he feared another referendum would bring down the coalition. But by Tuesday night, he was pledging to veto any treaty that did not contain safeguards for the City of London.
Many ministers are inclined to go to ground as soon as they hear Europe mentioned. But when I meet Owen Paterson, the Northern Ireland Secretary and one of the few representatives of the Tory right in the Cabinet, he has plenty to say. He starts by talking about Northern Ireland but pretty soon we turn to the EU.
‘There is no question, if they effectively create a new country, that is absolutely their right to do so. It does run counter, of course, to 300 years of British foreign policy in trying to avoid that happening. But if that is the way out of the conundrum on the euro, I think we have to respect that. But they have to respect the fact that it will create a brand-new relationship for us,’ he says in a matter-of-fact manner from across the breakfast table.
Paterson is refreshingly free of the pomposity that grabs so many Eurosceptics when the subject of Europe comes up. But his message is clear. He warns that the EU17 would become ‘a new and very powerful country which can dominate us’. His concern is that a fiscally united eurozone will spend as a bloc, tax as a bloc — and, when it comes to European summits, vote as a bloc. As he points out, thanks to the Lisbon Treaty, the eurozone bloc will be big enough to gets its own way on all issues that are governed by qualified majority voting.
‘It is wholly unacceptable to have a new bloc in which we would be permanently outvoted,’ Paterson says. Like Cameron, he is particularly concerned about what this might do to the City of London, a financial district without equal anywhere else in Europe. ‘Bluntly, they may well go ahead and in effect create a new country, with very central control of taxation and transfer of funds to weaker areas. But if they want to go ahead and form their new country, we want to get the power to run our country back.’
Such language is all the more striking from Paterson because this Cambridge history graduate is the very opposite of the Little Englander. He is fluent in French and German and his idea of fun is spending the summer holidays racing across Mongolia on horseback with his wife. He represents the new Eurosceptic mainstream of the Conservative party — and is not embarrassed about it. ‘We have got to get away from this caricature that it is boring Tories banging on about Europe. This affects every single person whether they are in Enniskillen, Edinburgh or Eccleshall. It is not Europe, it is our daily government.’ The EU, he says, ‘affects every single activity from the moment we get up in the morning to the time we go to bed at night’. The phrase ‘banging on about Europe’ was, of course, popularised by David Cameron himself.
Yet it would be wrong to cast Paterson as a rebel. Throughout our interview, almost every point is buttressed by his belief that he is at one with the Prime Minister. ‘David Cameron said change brings opportunities,’ he says. ‘This is an opportunity to begin to refashion the EU, so it better serves the nation’s interests and the opportunity in Britain’s case for powers to ebb back instead of flow away. I entirely agree with the Prime Minister — this is a great opportunity.’ There are at least half a dozen such references.
For Paterson, this is as much about economic recovery as sovereignty. His experience as managing director of the British Leather Company in the 1990s and his Shropshire-born-and-bred common sense — at one point in the interview he refers to ‘metropolitan smartypants’ — explains a very practical Euroscepticism.
‘Hardly a Cabinet meeting goes past when an issue isn’t raised where we are being stopped by some form of European regulation,’ he observes. He also isn’t confident that EU rules are fairly applied. ‘I have constituents who are enormous egg producers, they have invested £25 million in making their cages compliant [with new EU regulations] by January. They know perfectly well that a significant number of their competitors across the continent are going to be illegal. But there is no proposal to bring those people to heel. So if we can’t even control the market on the egg industry, how are we going to trust them on financial derivatives when we are going to be in a minority?’
So what will happen next? Despite Paterson’s protestations, it is far from certain that Cameron will use this moment to bring powers back to Britain. At the moment the Prime Minister is simply pledging that he’ll demand ‘safeguards’ for the City of London at this week’s European Council meeting. He appears unwilling to obstruct anything that might be seen as a solution to the eurozone crisis. He is also in coalition with the most pro-European party in British politics. How does Paterson see the conflict?
‘I am not sure the Liberal Democrats are quite as homogenous as everyone makes out,’ he says. ‘They are great supporters of localism and I would have thought having more decisions made locally would be something they would go along with.’ Intriguingly, he suggests that the coalition could survive an EU referendum that pitted the two partners against each other. ‘We went through an AV referendum which was completely binary — the Conservative party said it was black and the Liberals said it was white. We couldn’t have been more opposed to each other. There were a few ups and downs. But the coalition survived.’
Unlike the Prime Minister, Paterson does not accept the logic that a treaty change to create even closer union between the eurozone countries would not affect the balance of power between Westminster and Brussels. ‘If there was a major fundamental change in our relationship, emerging from the creation of a new bloc which would be effectively a new country from which we were excluded, then I think inevitably there would be huge pressure for a referendum.’
When I push him on whether a referendum would be required, he replies: ‘I think there will have to be one, yes, because I think the pressure would build up. This isn’t going to happen immediately because these negotiations are going to take some months. But I think down the road that is inevitable. ‘
Again, all of this is said with approving references to Mr Cameron’s speeches. Paterson argues that now is the moment for the Prime Minister ‘to pursue his aims which have been very publicly declared’. Addressing the EU would, he argues, be a way to make Britain more competitive.
Regulation, he says, is not just a headache but the thief of time. ‘Government can wreck a business by confiscating its money by taxation. But confiscating its time is absolutely critical too, and I think, sadly, not enough people in government have tried to run a small business. Time that small businesses devote to regulation is time they are not ringing up a customer, not looking at the product or visiting a supplier. And that I think that is not understood.’ He doesn’t say by whom.
When I ask him if he thinks Cameron will deliver on Europe, he replies, ‘Yes because he has made it completely clear in public and in private that he does understand this.’ He believes that ‘at least 80 to 90 per cent’ of the Tory party want some form of renegotiation. Citing among other things the recent Commons rebellion by 81 Conservative MPs on the EU referendum motion, he observes that ‘the mood has really changed and has definitely hardened up and has to be respected’.
If Cameron does not appreciate this new reality, then he could be about to enter the most dangerous period of his premiership.