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.