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By Tim Montgomerie
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The German and British leaders were all smiles at the very short press conference they've just held in Berlin. Both were eager to stress the things they shared. Mrs Merkel paid tribute to the role Britain played in arguing for a more competitive Europe and a more competitive global trading system. Mr Cameron emphasised the two nations' agreement on limiting any increase in the EU budget to inflation; completing the single market in energy and services; and individual governments reducing borrowing.


But they gave no indication that their differences had been resolved in their private discussions. In fact we had nein, nein, nein from Europe's new Iron Lady:

  • On the least important difference with Britain – the Tobin Tax – the German Chancellor stated it bluntly: "We didn't make any progress on that". George Osborne has made it clear a financial transactions tax would be unacceptable to London.
  • On deploying a big bazooka – Cameron called it a "superwaffe" today – to stabilise the Eurozone there didn't seem any movement either. Britain thinks the ECB and Eurozone central banks should play a greater role. John Baron MP has pointed out that the Bundesbank has £180 billion of reserves – including £130 billion in gold. Germany does not want to deploy those reserves, fearing hyperinflation might result.
  • Thirdly is the issue of Treaty change. Cameron doesn't want a treaty soon, Germany does. When a Treaty change comes Cameron wants it to be wide-ranging, Merkel wants it to be narrow. At the press conference she affirmed her belief in European solidarity. European nations need to be united to survive in the world, she said. Her foreign minister, Guido Westervelle, could not have been clearer in today's FT (£) (my emphasis):

"We need to provide for the future and upgrade the monetary union to a stability union. Sound budgeting is not a German idée fixe based on our historical experience of hyperinflation. It is in the interest of Europe as a whole. Voluntary commitments and debt brakes are necessary, but insufficient. If we want to turn things around irreversibly, we will not be able to avoid amending the treaties. There is no time to lose. It is vital to send a clear message to markets that the eurozone is determined to end the policies of debt-making. At the European Council in December, we should agree on establishing a convention for a limited treaty change. Its mission would be to strengthen the economic and currency union, no more, but no less."

This is a nightmare for Cameron. He is talking big on getting fundamental EU reform. His party, the majority of British voters and the centre right press expect nothing less. But Germany is determined he won't get it and in that determination Mrs Merkel has a resolute ally in one Mr Clegg. My fear is that Germany will get what it wants in return for dropping the Tobin Tax idea, a cap on the EU budget and some limited reform of, say, fisheries policy. That will provoke a great deal of unhappiness on Cameron's backbenches.

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