George Parker and Quentin Peel：UK and Germany：Exasperated allies

　　Angela Merkel will sit down for dinner with David Cameron in the Downing Street state room on Wednesday and attempt to avert another European diplomatic debacle: a fight over money that could leave the traumatised EU without a budget.
 
　　If all goes to form the dinner will be convivial but largely fruitless, for the German chancellor and the UK prime minister enjoy one of the warmest but least productive relationships in European politics. The two countries need each other but neither seems willing or able to deliver what the other needs.

　　Last month the tensions were apparent in a preparatory phone call to discuss ways out of the impasse on the EU budget – a recurring seven-year nightmare in which members of the 27-member bloc are this year trying to agree a package of financial transfers and farm subsidies worth about €1tn.
 
　　“There seemed to be a lot of euroscepticism at your party conference,” Ms Merkel noted, after witnessing an outpouring of hostility towards Brussels at Mr Cameron’s Conservative convention in the English city of Birmingham.
 
　　The prime minister replied that he had spent part of the conference trying to facilitate a combination of BAE Systems, Britain’s biggest defence company, with continental rival EADS to create a European aerospace champion. Mr Cameron said that he had been “the good European”, while Ms Merkel had blocked the deal on grounds of national self-interest.
 
　　“It was said in good humour, but there was an edge to the conversation,” says one British official. Tonight Ms Merkel and Mr Cameron engage in a game of brinkmanship that will help determine whether the EU agrees its budget or descends into further rancour, adding another layer of problems to the crisis surrounding the euro.
 
　　Ms Merkel likes working with Mr Cameron. After an awkward start in 2010, she has come to appreciate his businesslike approach to politics that matches her own, forming a contrast with the more emotionally charged relationship with Paris.
 
　　Mr Cameron has played on her soft spot for gentle English countryside, inviting her to Chequers, his official rural retreat. The leaders enjoyed walking through the chalk hills before retiring to watch DVDs of bucolic detective series Midsomer Murders, one of the German chancellor’s favourite television shows.
 
　　“They get on well enough but it is hard to think of a single instance where Merkel has changed the German position to help us,” observes one British official.
 
　　In principle, then, Germany and Britain could build a more productive relationship, championing a shared vision of Europe where fiscal discipline accompanies a vigorous push to open European and world markets to bolster growth. Instead there is mutual suspicion.

　　Warsaw warns London against walking away
 
　　Radoslaw Sikorski, Poland’s foreign minister, sounds like a British Conservative, writes George Parker. Like Prime Minister David Cameron, he studied politics at Oxford, worshipped Margaret Thatcher and became a fiscal hawk. But all that changes when he starts talking about Europe.

　　In spite of the personal rapport, the two leaders are heading in different directions. Ms Merkel wants closer European integration while Mr Cameron wants to disengage. The German chancellor wants Britain to move out of the way as the eurozone tries to settle its problems, while Mr Cameron last year opposed a fiscal pact designed in Germany and is now prepared to go to the barricades again over the EU budget.

　　The frustration is mutual.
 
　　“We are not very optimistic but we are still trying,” says a senior German official ahead of the Downing Street meeting. “We must try to keep the British in Europe as much as we can. This is still her basic conviction: it is not easy, but it is the basis on which she deals with Cameron.”
 
　　Ms Merkel fears Mr Cameron intends to use the special EU budget summit on November 22-23 to stage an opinion poll-boosting “fight” with Europe, in which he will veto a deal in the dead of night after hours of fruitless negotiation. From Berlin’s perspective, this impending drama is just another staging post in Britain’s protracted departure from the European mainstream and – potentially – its exit from the EU altogether.
 
　　“There’s no hostility in Berlin, just a general view that Britain is out of it,” says Denis MacShane, a former British Europe minister. “The political elite all speak very good English, they read the press.” It did not pass unnoticed in Berlin that Mr Cameron has been advised by Chris Grayling, his justice secretary, to offer the country more “veto moments” to help win the next election.
 
　　In London there is frustration that Ms Merkel has departed from her 2010 undertaking – in a joint statement with Mr Cameron – to demand a real-terms freeze in the EU budget from 2014-20. She is now willing to accept a small increase to help fund development in Poland and other close trading partners to the east.
 
　　Mr Cameron is sticking to his demand for a freeze to reflect the tough cuts being implemented by member states and cannot understand why Ms Merkel, a fiscal disciplinarian, has backed down. For her part, she is trying to orchestrate a compromise halfway between the British freeze – without inflation, the seven-year budget would be €885bn – and the European Commission proposal, which Berlin puts at €1,091bn.
 
　　But the debate is more about politics than money. Ms Merkel wants a budget deal in November so she can move on to her real problem: resolving the crisis in the eurozone and building the political and economic union she believes is needed to underpin the single currency.
 
　　Mr Cameron knows he can win plaudits at home by standing firm. Indeed, last week the House of Commons voted to actually cut the EU budget, a defeat for him in which more than 50 Tory MPs rebelled and confirmed his vulnerability on Europe. One British diplomat says: “We have got to try to land a deal on a patch of land about the size of a handkerchief.”
 
　　The prime minister’s advisers admit that any short-term domestic political gain from vetoing a budget deal could have long-term consequences, as Ms Merkel is likely to remind him at tonight’s meeting.
 
　　Long after the budget issue is resolved, Mr Cameron needs the support of his European partners – Ms Merkel in particular – to achieve his goal of realigning Britain so that it retains a key role in Europe but stands aside from the deepening integration under way in the eurozone.
 
　　Before Christmas, Mr Cameron will be seeking to protect the City of London from the impact of a proposed eurozone banking union. In the longer run, he hopes to renegotiate the terms of Britain’s EU membership, retaining its interest in the single market but “repatriating” powers in areas such as social and employment legislation, justice and policing, and fisheries.
 
　　“People in Britain think that because we’re important, the other Europeans will say yes,” says Charles Grant, director of the Centre for European Reform, a UK-based think-tank. “But they will say no. People are deluding themselves. They won’t allow us to opt out of significant policy areas.”
 
　　Nick Clegg, Britain’s deputy prime minister, warned this month that this shopping list for the repatriation of powers was “a false promise, wrapped in a Union Jack”. The leader of the Liberal Democrats, the pro-European junior coalition partner, fears that when the Tories realise this, calls for an outright exit will grow.
 
　　“If anyone else tried to do it,” said Mr Clegg, “if the French tried to duck out of the rules on the environment or consumer protection, if the Germans tried to opt out of their obligations on competition and the single market – we would stop them, and rightly so.”
 
　　The Tory right, however, believes it is in tune with British public opinion. Indeed, Mr Clegg is almost alone today among leading UK politicians in making pro-European speeches. But he insists: “There is no hard border between repatriation and exit because – for these people – repatriation is pulling at a thread and they want to unravel the whole thing.”
 
　　Mr Cameron and William Hague, foreign secretary, know that German support is vital if they are to achieve any new negotiated settlement, and diplomats say there is a conscious stepping up of activity to build understanding for their position in Berlin.
 
　　“With France there’s much more understanding,” says one British official. “Our people go to France on holiday, they come to London. We know where we disagree but can also find areas where we agree. With Germany there is much more scope for misunderstanding.”
 
　　Indeed, the mood towards the UK in the German political establishment is a mix of exasperation and deep concern. At precisely the moment when Berlin sees the need for “more Europe”, involving steps to closer economic and political integration in the eurozone, the UK wants a looser relationship and more opt-outs.
 
　　Within Ms Merkel’s centre-right Christian Democratic Union, the core of her ruling coalition, there is a growing feeling that a UK referendum to decide the question of EU membership once and for all would be desirable. “Most of us want a clear decision,” says Michael Stübgen, European affairs spokesman for the CDU in the Bundestag. “The British must decide. About 80-90 per cent of [British] MPs want a referendum, but the government does not. I would really welcome a decision.
 
　　“I think it would be better if the UK remained in the EU. But in recent years, Cameron has developed a European style which cannot be sustained for long. Europe à la carte is not a sustainable situation. You cannot be half-pregnant.”
 
　　Similar views are voiced in the opposition Social Democratic party. Karsten Voigt, former SPD foreign affairs spokesman, says: “Germany al­ways wanted Britain to stay in the EU and to play an active role in it. But in the last years I find more and more politicians who are simply giving up.
 
　　“In the end Britain has to decide whether they really want to be in or out – out meaning a type of Norwegian or Swiss relationship with the EU.”
 
　　Hitherto Berlin has tried to ensure decisions taken by EU members to help stabilise the eurozone should not exclude the involvement of Britain and other euro “outs” such as Sweden and Denmark. Germany wants liberal northern states at the table to fight for the single market and deregulation – and as a useful counterweight to France, Spain and Italy, which tend towards a more protectionist ap­proach. Germany also wants to accommodate Poland – not yet a euro member – as Berlin’s focus turns to Warsaw as an invaluable EU partner and away from London.
 
　　Paris, on the other hand, favours a focus on a “core Europe” based on the eurozone members and those aspiring to join the single currency. This would have its own summit meetings and separate processes, in which Paris rather than Berlin would find itself at the centre of political gravity.
 
　　“Germany needs us,” says one British diplomat. “There isn’t a majority for the single market or free trade at 17 but there is at 27.”
 
　　Tonight’s Downing Street dinner will provide an early test of the limits of Ms Merkel’s willingness to accommodate a potential economically.
 
　　Gisela Stuart, a British Labour MP born in Germany, is not optimistic. “I don’t think we have ever been further apart in my memory,” she says. “I just feel there is nothing in common. The Germans recognise the single-market issue but both sides are fed up with each other. In Berlin they look at Britain and ask: ‘What for?’”

November 6, 2012
Source：The Financial Times