First Coulson, now Hilton: Cameron is losing key lieutenants. He is in trouble from all sides. Things are about to get worse still.
FOURTEEN
The EU: Back Burner to Veto
May 2010–December 2011
‘I don’t want Europe to define my premiership,’ Cameron said shortly before the general election. In the months leading up to it, a series of Whitehall specialists on Europe had told him the next five years would not be difficult in the EU. With the 2009 Lisbon Treaty out of the way, they said, no more treaty changes are envisaged, and the EU will settle down to one of its quiet periods. ‘We didn’t expect Europe to form a big part of the agenda,’ he says with confidence.1 Cameron was just twelve years old when Thatcher came to power. He observed with dismay the fights over Europe during her premiership, and had a vantage point as a special adviser on the vicious infighting during John Major’s premiership. If elected prime minister, he does not want his own leadership to be bogged down by Europe.
He implored the Conservative party conference in October 2006 to stop ‘banging on about Europe’, and to focus instead on the issues that mattered to people, like public services. His victory over David Davis and Liam Fox in the leadership contest was strengthened by his pledge to withdraw Conservative MEPs from the European People’s Party (EPP) in the EU Parliament, one of the few specific policy pledges he made. His advisers told him that the EPP was a stitch-up between Paris and Berlin, and he would do well to be out of it. (The withdrawal from the EPP group came about later in 2009, and the Conservatives helped form the European Conservatives and Reformists (ECR) group. The move pleased Eurosceptics while causing dismay in European capitals, notably Berlin, and led to an angry Angela Merkel withdrawing the head of the Konrad-Adenauer-Stiftung political foundation in London, Thomas Bernd Stehling.)
Cameron’s attempt to neuter the EU as a toxic issue continued in September 2007 with an article in the Sun offering a ‘cast-iron guarantee’ of a referendum over the Lisbon Treaty, should it be signed but not ratified.2 This was rash. By the spring of 2009, it became clear that Lisbon would be ratified. That summer Cameron discussed how to respond with his team, George Osborne, William Hague, Ed Llewellyn, Oliver Letwin, and Steve Hilton. They were in a vice. Persisting with a referendum policy on Lisbon would damage the party’s standing with key business and financial interests, and might impact negatively on the general election. But admitting that the ‘cast-iron guarantee’ was premature would only inflame Conservative backbenchers. A middle way had to be found.
As so often when in a tight spot, Cameron fell back on the expedient of a speech. Written by Llewellyn and Hilton, he delivered it at St Stephen’s Club in London on 4 November 2009. Cameron announced that as Lisbon had been ratified, it could not now be undone: but he boldly promised he would ‘make sure this never happens again’ by offering a ‘referendum lock’, whereby a British government could only transfer powers to the EU in the future if the British electorate gives their consent in a referendum. He promised to work to make the EU more congenial to Britain, not least by the ‘returning of powers’ to London. But he argued that ‘Britain’s interests are best served by membership of a European Union’ and said he would work for changes to make British membership more beneficial, including financial regulations to protect the City of London’s competitiveness. Although offering the electorate an ‘in/out referendum’ on the EU in a second term did not make it into the speech, Cameron’s team say they ‘had this prospect clearly in all our minds’. The speech did not let him off the hook. To his right wing in Parliament and the country, and to Eurosceptic commentators in the media, his dodging of a referendum on Lisbon was a broken promise. Even a betrayal.
So confident nevertheless were Cameron and Osborne that the EU would not become a major issue during the premiership they did not convene any strategic meetings before the election to hammer out their thinking. The manifesto merely included the reforms promised by Cameron at his St Stephen’s Club speech.
The election brings large swathes of independent-minded and Eurosceptic Conservative MPs into Parliament. The party watches warily as Cameron’s team disappear with the Lib Dems into a huddle to plot the Coalition Agreement. Lib Dem negotiators make it clear they will not allow any mention of powers being returned from the EU: the most they will allow is a re-examination of the ‘balance of competences’. Clegg is worried about the Conservative Party on Europe, and is adamant that there will be no renegotiation of the terms of accession.3 The Lib Dems will, however, allow the ‘referendum lock’ envisaged by Cameron in the St Stephen’s Club speech (which is enacted in 2011), confirming their own manifesto commitment to a referendum in the event of ‘a fundamental change in the relationship’ with the EU.4 They agree importantly with the Tories that ‘the EU is not going to be a big feature of the life of the coming parliament’.
Cameron is full of hopes for crafting a forward-thinking EU policy. He envisages as many free trade agreements as possible, rolling back unnecessary EU legislation, and building long-term alliances with northern states Sweden, Denmark and Finland, as a countervailing force to the central European states who are the big spenders and who tend to dominate EU policy. He envisages taking a very tough line on the seven-year EU budget from the beginning, as Thatcher had done, and will insist that it be reduced. With Osborne, he is emphatic that British money will not unnecessarily go to Europe. He knows that financial services regulation will be a big battleground, and he will fight to ensure that the City of London is protected. Officials in Whitehall think neither the Conservatives nor Lib Dems understand the EU or what is happening in the eurozone. ‘I don’t want Europe to be noisy,’ Cameron tells one. Like Blair in 1997, he believes he can usher in a new era of Britain–EU relations.
These aspirations are called into question very early on. It is easy with hindsight to understand why. The eurozone crisis had not been foreseen. The first harbinger of trouble comes in Greece the month after the St Stephen’s Club speech. It takes off from February 2010, and continues throughout 2011. The crisis heightens the need to protect financial services, which constitute some 4% of British jobs. Number 10 is exasperated with the previous government’s handling of the EU commissioner negotiations, blaming Gordon Brown for botching them in late 2009 by accepting the High Representative portfolio for Baroness Ashton rather than holding out for an economic portfolio. The result has been that Ashton’s foreign policy role takes her too often abroad and away from protecting British interests in Brussels. Their concerns are exacerbated by a lack of faith in other office holders, notably Michel Barnier, commissioner for Internal Market and Services, who they regard as neither pro-liberalisation nor pro-City of London. EU president Herman Van Rompuy they eye warily, believing his mission in life is to ‘reconcile the differences between Paris and Berlin, leaving little room for us’. The net result is a diminution of British influence in Brussels.
The key reason why Cameron’s premiership becomes so dominated by Europe is down to the Conservative Party itself and the rise of UKIP. Hague anticipates how difficult the party might be, but Cameron is caught off guard by the strength of feeling on the issue, with cheerleaders Norman Tebbit in the House of Lords, Daniel Hannan in the European Parliament, Douglas Carswell and Mark Reckless amongst newer MPs, and Bill Cash and Bernard Jenkin amongst the old guard. Cameron has Eurosceptic tendencies of his own, but he has only contempt for UKIP and its leader Nigel Farage. In 2006, Cameron had memorably described the party as full of ‘fruitcakes, loonies and closet racists’. The words refuse to go away because they seem to capture what, deep down, people suspect Cameron thought. But is the UKIP bubble bursting? While the party came second in the European election in 2009, winning nearly 2.5 million votes, it performs poorly at the 2010 general election. Cameron dearly hopes it is on the wane.
It isn’t. The fervour surrounding UKIP and within his own party drives Cameron steadily rightwards on Europe, which only increases conflict with the Lib Dems. Cle
gg for a long time remains respectful and understanding of Cameron’s difficulty in ‘trying to manage the constant rage of the Tory Party’.5 After the summer recess in 2011, the rage breaks out into the open. A public petition calling for a referendum on continued EU membership attracts 100,000 signatures.6 On 24 October, the House of Commons votes on a motion calling for an in/out referendum. Feverish discussions take place amongst Cameron’s team in Number 10. ‘We cannot lie down on this. We must have a three-line whip,’ says Cameron. Osborne and Hague concur. ‘Such a referendum is not in the manifesto and is not Conservative policy,’ Cameron continues. If they don’t get tough, they will send out a signal that it’s fine to vote against it, and ‘we will have had 150–200 MPs filing through the “no” lobby’. He worries that Labour might decide not to participate, resulting in the motion being carried.
Cameron is infuriated with his backbench Eurosceptics. They gave him no credit earlier in the year for negotiating Britain out of the European Financial Stability Mechanism (which Labour had entered). Cameron orders an ‘industrial-scale operation’ to organise resistance to the referendum motion.7 The chief whip Patrick McLoughlin is confronted by a spectrum of opponents, from ultras like Cash to those who have said in their election literature they favoured a referendum. Others are venting their anger, he believes, at not receiving a ministerial job after the general election, with the Lib Dems scooping up many plum posts. Things turn nasty: one parliamentary private secretary, Stewart Jackson, is sacked after voting against the government; another, Adam Holloway, stands down. The motion is nonetheless heavily defeated by 483 votes to 111. However, no fewer than eighty-one Tory MPs defy the three-line whip and their prime minister. Many openly say they do not know where the PM’s instincts lie on Europe. It is not a good omen. He is becoming bogged down in Europe.
At some point during 2011, Cameron takes a critical decision: despite his strong, if volatile, relationship with Nicolas Sarkozy, he decides Merkel will be the key to advancing British interests in the EU. The European Council, which had twenty-seven nationalities when he became prime minister (increasing to twenty-eight with the accession of Croatia in July 2013), arouses strong feelings in him. ‘Nothing I did beforehand gave me any preparation for them,’ he says.8 While he quite enjoys his work on EU business, which takes some 10% of his time as PM, and likes negotiating optimum outcomes and building alliances, he finds the organisation and very frequency of the European Councils – where the leaders meet on their own without officials or ministers – very wearisome. He frequently returns to London drained and cross. He wants to talk about deregulation, productivity and job creation, but is steamrollered by fellow leaders who do not share his economic ideals. He has few soulmates: he enjoys his regular meetings with Sarkozy and the grandiose ideas that emerge from the mouth of this Gallic version of Steve Hilton. But much of the conversation with Sarkozy is just flannel; besides, he is replaced by the left-wing François Hollande in May 2012. Cameron chimes with Jyrki Katainen (Finland), Mark Rutte (Netherlands), Frederik Reinfeldt (Sweden) and Helle Thorning-Schmidt (Denmark), but his lack of strong philosophical allies in the EU leads him to become still more dependent on the lone figure of Merkel.
Cameron first meets her on 21 May 2010, within days of becoming PM. She has been chancellor already for nearly five years, and has approval ratings of which Cameron can only dream. Cameron flies with his party of Ed Llewellyn, Europe adviser Jon Cunliffe, national security adviser Peter Ricketts, foreign affairs adviser Tom Fletcher and future ambassador to Germany, Simon McDonald, meeting Merkel in her rooms on the eighth floor of the Chancellery in Berlin. The two leaders talk on her terrace that overlooks the city before the wider team join for lunch. Merkel is perplexed to see some of Gordon Brown’s team there. The neutrality of the British Civil Service is foreign to her and she asks Cameron, ‘Explain to me again how these people are still with you?’ After the lunch, in a lift, she says to one, ‘How does this work? I thought you worked for Gordon.’
She is intrigued by this new ‘upper class’ prime minister, admiring his confidence and manners. But there is a tension in the air: even though she is no longer furious, she is still disconcerted by his withdrawal from the EPP. She is not a vindictive person and her anger has mellowed. Cameron reads his briefing notes on the flight from seeing Sarkozy in Paris: they highlight her antipathy, and he is thus wary, remaining so for the early councils. On her side, she concludes that this charming new PM is apt to make up his mind a little too quickly. She admires his speed of decision-making, but thinks he should be more reflective and considered. She surmises, correctly, that he hasn’t thought through fully Britain’s position as a non-euro country, or come to terms with the reality that the financial crisis means that the euro countries will have to integrate more – or risk breaking up. But they strike a chord: the encounter suggests they will share an affinity, and there is even a suggestion of personal chemistry.
Relations deepen over the summer, and on 30 October, Merkel arrives on an overnight visit to Chequers. She brings her husband, Professor Joachim Sauer, a professor of physical and theoretical chemistry at the Humboldt University of Berlin. It is a mark of the regard that Merkel has for Cameron, as well as of Chequers’ mystique, that her husband joins her on this trip. They converse in English: Cameron has a little French, but no German, whereas her English is excellent. The next day, they walk across muddy fields, which she enjoys. Her party stay in a local hotel and join for discussions, mostly on the eurozone crisis, the following morning.
The eurozone dominates their discussions in 2011, with the debt-heavy euro countries – Portugal, Greece, Spain and Ireland – threatening to drag the entire economy of Europe into disaster. Harsh austerity measures adopted by most have varied impacts, but in Greece the scale of the problem proves insurmountable. Merkel plays a lead role in agreeing a series of packages to prevent Greek debt from wrecking the entire euro project. Talks between her and Sarkozy are described as ‘the last chance’ to prevent collapse of the euro.9 In late 2010, Cameron had assented to a small treaty change Germany said it needed to stabilise the euro. But he is uneasy about it. She is perturbed by Cameron’s scepticism about the eurozone’s prospects, and lack of sympathy for its plight. She is particularly upset when he later describes himself as a ‘Eurosceptic’. He comes on the phone to explain to her that the word ‘sceptical’ in Britain doesn’t mean the same as in Europe. ‘It doesn’t mean I am against the European project. What I want is a reformed Europe.’ He says he has to be pragmatic and practical. ‘I think I get it,’ she responds. She quotes a saying of one of her predecessors as chancellor, Helmut Schmidt: ‘He who has visions should go to a doctor.’
On 18 November 2011, Cameron travels to Berlin to meet her for a long lunch. Officials have already warned him that further treaty change is being considered by Germany to deal with the eurozone crisis. To prevent countries from accumulating the huge debts that had triggered the crisis, a Fiscal Compact Treaty is being proposed to reform the euro and fine countries failing to meet certain regulations. Even though it wouldn’t have directly affected the UK, as it is outside the eurozone, the treaty could be seen as damaging to the UK. The British oppose it because they think it will be a threat to the British financial sector. Cameron wants to convince Merkel to agree to safeguards that Britain needs, and then to impose the treaty on the other twenty-five leaders. Also in his mind is the fact that pushing a new treaty through Parliament without safeguards for Britain’s financial services would be indefensible in the eyes of many in his party, especially after the October rebellion. Merkel has her own problems: she needs a new treaty to assuage public opinion in Germany, which is anxious about bailing out irresponsible eurozone members, but is isolated among other European leaders. Fond though she is growing of her British counterpart, she resents the way she feels boxed into a corner by him, compounded by what she feels is a lack of British empathy or appreciation for her role in saving the eurozone (although some argue Germa
n actions contributed to its difficulties).
Over lunch, Cameron and Merkel have a philosophical discussion about markets, and why they have lost confidence in the eurozone. ‘You can’t complain about them, they reflect reality, they don’t have a political agenda,’ Cameron says. Merkel probes him, wanting to understand the Anglo-Saxon capitalist mindset. He says he will ask British official Jon Cunliffe to send her an analysis on why the eurozone is experiencing its deep structural problems.
The lunch breaks up mid-afternoon. Cameron believes that he has got her in the right place. ‘Okay, let’s be practical,’ she says. ‘You send me a text of things that are possible that you want, and I’ll send you the things that are impossible, and I’m sure there will be an overlap.’ ‘What about Sarkozy?’ Cameron asks. ‘Nicolas will agree,’ she replies. ‘He has changed his philosophy and is closer to the UK and Germany compared to a year ago.’
Back in London, discussions take place between Cameron, Hague and Osborne. Cameron also talks separately with Clegg, who he needs on board. ‘I remember people being very paranoid about our negotiating position being leaked, and not discussing the content of it on the phone,’ recalls one. The British strategy remains investing all effort in Merkel’s ability to leverage a deal beneficial to them between national leaders. British ambassadors across the EU are frustrated that they are not being asked to lobby their national leaders on the issue: ‘The Rolls-Royces were never taken out of the garage,’ says one.
The text is sent, as promised, from Whitehall to the German chancellor’s office. It says the British government would support treaty change in return for changes that would satisfy Parliament. These include protection for financial services, and changes to health and safety and the working time directive. ‘It contained six paragraphs,’ says an official involved with its creation. ‘These were the areas Britain needed and we wanted to know from them which were feasible.’ Days pass and Berlin refuses to give a clear response. Cameron decides to send Cunliffe into action with Nikolaus Meyer-Landrut, Merkel’s EU adviser, to unblock the logjam and broker an agreement. The team in London ponder whether the six paragraphs of tough and detailed Treasury language proved indigestible to German stomachs: some wonder whether a couple of sentences might not have been much better. But it becomes clear that Merkel is simultaneously negotiating with other leaders, principally Sarkozy. ‘The Germans were keeping us in play all the time while they looked for other options,’ surmised one British official. Number 10 is becoming very apprehensive.
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