Fact check: Can we take Danny Alexander's "3 million jobs" threat seriously?

In June, Liberal Democrat Chief Secretary to the Treasury Danny Alexander said that, according to Treasury analysis, more than three million British jobs would be at risk if Britain left the European Union. This is what he said:

“Indeed, the latest Treasury analysis shows that 3.3 million British jobs are connected to Britain’s place in Europe. That is the measure of the risk that isolationists would have us take.”

What new analysis could this be? So we asked the Treasury. You can read the full response here, but this is perhaps the key part:

“As set out by the Chief Secretary to the Treasury, the Treasury estimate that 3.3 million jobs in the UK may be related to exports to other European Union countries. This figure is based on the assumption that the share of UK employment associated with UK exports to the EU is equal to the share of output that is exported to the EU, making allowance for the composition of the UK economy. It is not an estimate of the impact of EU membership on employment.”

The Times also reported on the FOI response today. Now, there are at least three things that are problematic with Mr Alexander's claims:

1. First of all, this is not in fact 'new' analysis. As the response to our FOI makes clear, Mr Alexander's remarks were based on the following methodology, which has been used and cited countless times before. In 2003, Ruth Kelly told Parliament that:

"The Treasury estimates that 3 million jobs in the UK are linked, directly and indirectly, to the export of goods and services to the European Union. This figure is based on the assumption that the share of total UK employment associated with UK exports to the EU is equal to the share of total UK value added (GVA) generated by UK exports to the EU. The information necessary to apply the same method to derive comparable estimates for England, Scotland, Wales and Northern Ireland is not available."

In February 2014, Lord Livingston again confirmed this methodology as follows:

"The estimate of 3.5 million jobs linked to trade with the European Union is based on the assumption that the share of UK employment linked to trade with the EU is equal to the share of total UK value added (GDP) generated in the production of goods and services exported to the EU." 

"The calculation uses data from UK Input-Output tables to estimate the proportion of UK value-added content generated in exports of goods and services and applies this to the values of UK exports to the EU. This is then divided by total UK GDP and the resultant proportion then applied to the total UK labour force to estimate the proportion of the labour force linked to EU exports on a value-added basis."

In short, the methodology dates back more than ten years and does not seem to have been updated at all.

2. Perhaps most crucially, as the Treasury's response makes clear, this study "is not an estimate of the impact of EU membership on employment." So it is rather misleading, to say the least, of Mr Alexander to suggest that these jobs are at "risk". To say that X number of jobs are linked (directly or indirectly) to exports to the EU is clearly not the same thing as suggesting that they are dependent on EU membership. To be fair to Mr Alexander the Treasury's position on this is somewhat confused itself - it claims that this is not an estimate of the impact of EU membership on employment, however, that is exactly what the simplistic calculation and, importantly, its flawed counterfactual seem to suggest (see below). 

3. Thirdly,  is immediately apparent, it is a very simple approximation, not detailed analysis which one might have expected from HMT on such an important question. The methodology used is very simplistic, for a number of reasons:

• A flawed counter-factual: We have always stressed the importance of the counter-factual when assessing the future of the EU/UK relationship. The counter-factual here is essentially that these jobs would not exist without the EU.  This is odd for at least two reasons: first, it effectively assumes an end to all exports to Europe should the UK withdraw from the EU. We can argue about the level of market access a post-Brexit UK may be granted (we've done a lot of work on this) but one thing is clear: there will be exports from the UK to the EU under any scenario. Secondly, by definition the analysis assumes that all value added by jobs related to EU exports would not exist without the EU membership. A simple common sense check suggests that, actually many of these jobs may still produce some value even if the goods did not find their way to the EU and that the resources could be alternatively employed.
• Assumes productivity is the same across the UK economy: While it is claimed that the calculation "takes account of the composition of the UK economy" it is not clear exactly how this is done. On the surface the calculation also seems to implicitly assume that labour productivity (broadly output per worker or per hour) is the same across the entire economy (by saying the basic proportion of output corresponds to the same proportion of employment). Fundamentally we know this is not true - on the most basic level, we know that skilled and unskilled jobs will have different productivity levels. A quick glance at the most recent ONS labour productivity statistics confirms this and highlights that over the decade since this methodology was created, different sectors' and regions' productivity rates have grown in different ways. Unless this is accounted for in a detailed way in the methodology it is likely to distort the figure.

The final point above suggests that there is either some continuing lack of transparency with regards to the calculation or it really is just overly simplistic (if not both). This is all quite ironic given that UKIP and Better Off Outers in general are often criticised - and often justifiably so - for not establishing a credible counter-factual whilst relying on heroic assumptions.

Mr Alexander should know better.

Fact-checking the Clegg v Farage EU debate

The first EU debate between Nick Clegg and Nigel Farage on LBC was for the most part restrained with a surprising amount of detail and substance. Most of the key fault lines in the UK-EU relationship were touched on.

However, given that the two men represent the polarising ends of the debate, there were also a number of claims that struggled in the accuracy department. Here is our quick 'fact-check' of the key debating points:

Claim - Clegg: I supported a referendum on Lisbon

Verdict: Technically true but highly misleading

On the referendum question, Clegg said that when it came to new EU Treaties transferring new powers to Brussels,

"I've never wavered in that position, that's why the last time the rules changed, something called the Lisbon Treaty, I said there should be a referendum."

It is true that the Liberal Democrats called for referendum on Lisbon but crucially it was an in/out referendum which was not on the agenda at the time - the issue wasn't even put to put to a vote. There was however a vote on whether to have a referendum on the Lisbon Treaty itself on which the party abstained, despite the fact that together Tory MPs, Lib Dem MPs and Labour rebels could have passed it. Clegg is being highly disingenuous by blurring the distinction between an in/out referendum and a treaty specific one. Farage's quip that there was no point waiting for a new Treaty as powers were being transferred to the EU every week via directives and ECJ rulings was quite effective in this context.

Claim - Farage: Under EU rules we have a completely open door to 485 million Europeans 

Verdict - Partially true but unclear on the numbers

It is true that the free movement of labour is a fundamental principle of the EU and the UK cannot limit the numbers of EU migrants coming over. However, Clegg was right to point out that the right to free movement is not completely unqualified - under the free movement directive migrants have to be able to support themselves financially or have 'reasonable' prospects of finding a job.

In terms of Farage's 485 million figure though we have to say we are a bit confused as to where exactly this comes from - the population of the EU28 is around 506 million, which minus the UK's approximately 63 million leaves 443 million.

Claim - Clegg: 3 million jobs would be at risk if UK left the EU

Verdict - Highly unlikely - would depend on a range of other factors

Clegg cited the well-worn '3 million jobs linked to the EU figure' despite established doubts over its veracity. Recently those tending to cite this number have replaced "depend on" with "linked to" but it's still dubious. As we've argued in the past, this claim is one of the most conspicuous examples of a rogue statistic without any credible counter-factual attached to it. The assumptions behind the 3 million jobs figure is that there would be no trade at all trade with Europe if the UK left the EU, which of course is nonsense -  a similarly heroic assumption to that which Better Off Outers make when calculating the cost of EU membership based on all regulatory cost magically disappearing on Day 2 post-Brexit.

Claim - Farage: UK would hold the whip hand in negotiations over a new trade deal with the EU

Verdict - Very uncertain 

Farage argued that in the event of an exit, the UK would "hold the whip hand" in trade negotiations with the EU due to the EU's trade deficit with the UK. We've looked at this in detail - the key point is that while this is true in the area of goods, when it comes to services - a crucial and thriving area of the UK economy - this is not the case. So with that logic, EU countries would have incentive to strike a deal with the UK in goods but not services including financial services. Secondly, the process for leaving the EU - the so-called Article 50 - actually involves less control for the UK than is often assumed, including a Qualified Majority Vote on the final deal in which the UK will not take part.

Claim - Farage: 75% of UK laws come from the EU. Clegg: no it's 7%

Verdict - Both are wrong

The contentious topic of how exactly how many UK laws are derived from the EU also came up, with Farage gleefully citing Viviane Reding's absurd claim that 75% of UK laws are decided in Brussels (as we've argued many times, Reding must secretly be on the UKIP payroll). Clegg went with the House of Commons' Library's briefing which estimated this to be around 7%. Regular readers will know we've analysed this in painful detail and the truth is it is simply not possible to say exactly - what's clear is that it's neither 7% (this only counts primary legislation which isn't meaningful at all) nor 75%. (But basically too many).

Claim - Farage: We give the EU £55 million per day

Verdict - True if counting gross cost, untrue and misleading if counting net cost

Farage is correct that the UK's contribution to the EU works out as around £55 million per day. However, that it is a gross figure which does not include the UK rebate (cold, hard cash the UK gets back from Brussels every year) and nor the UK's receipts from the EU budget (even if this is only UK taxpayers' cash being re-routed via Brussels).

Claim - Clegg: Without the EAW we'd struggle to extradite criminals and terrorists

Verdict - The EAW makes the process faster but it is not indispensable

The European Arrest Warrant (EAW) is used by EU states to speed up extradition procedures. It is true that the EAW has been used by the UK to recover suspected terrorists and other criminals from other EU states who have subsequently been found guilty and locked up. It is however untrue to claim that suspects such Hussain Osman and Jeremy Forrest could not have been recovered without it. Also before the EAW was agreed, there were agreement on extradition and the UK managed to successfully extradite plenty of criminals from EU countries through bilateral procedures. These were considerably slower but it is highly unlikely that with or without the EAW Italy would have wanted to hang on to Hussain Osman or France to Jeremy Forrest.

Clegg can’t just take on Farage – He also needs to spell out his own vision for EU reform

Ahead of the first EU debate between Deputy Prime Minister Nick Clegg and UKIP leader Nigel Farage, Open Europe's Pawel Swidlicki has written this piece for Lib Dem Voice:

Like all political obsessives up and down the country I’ve stocked up on popcorn ahead of Nick Clegg and Nigel Farage’s upcoming duels over Europe in anticipation of some captivating political theatre. However, from my more sober perspective as a political analyst, such a binary, ‘all-or-nothing’ debate over Europe is fundamentally flawed as it does not speak to where the majority of the British public are at. Polls have consistently shown that when respondents are offered options beyond staying in on the current terms or leaving altogether, the option of staying in a reformed/slimmed down EU proves the most popular across the political spectrum.

People hold different views about how they would like to see the European Union develop. Which of these statements comes closest to your view? (click to enlarge)

Source: YouGov poll for Open Europe, February 2014

As the polling demonstrates, the public is split over the question of the UK’s future in Europe, although staying in a less integrated Europe is by far the single most popular option across the political spectrum, including among Lib Dem voters (more so than among Labour voters!) and even among a substantial chunk of UKIP voters. The concern is that the debates will focus on whether the UK ought to leave or stay in at any cost, thereby ignoring the wider debate about how best to achieve EU reform.

David Cameron’s EU policy may suffer from a number of shortcomings but to his credit, he is at least trying to achieve the reforms that a majority of the public want. Nick Clegg has also acknowledged that the EU needs reform on a number of occasions and he recently set out a “bold” three-pronged agenda based on further trade liberalisation within the single market as well as between the EU and the rest of the world, slimmed down EU institutions and less regulation, and greater democratic accountability via an increased role for national parliaments. This is welcome, even if it falls short of the more ambitious and comprehensive vision for EU reform – with powers flowing back to member states – that he set out back when he was an MEP.

However, at the same event, he undermined his own message by claiming that the most that Cameron’s reform strategy could achieve – which includes all the objectives set out by Clegg himself – as “a few crumbs from the top European table… a little tweak here and there”. This is hugely unhelpful as it plays into the narrative that the UK has virtually no influence over the direction and development of the EU and must take what it is given.

Moreover, there are large gaps in Clegg’s argument when it comes to the future of UK-EU relations. How would the Lib Dems react if the UK were to lose an EU legal case over the safeguards it applies to prevent potential abuse of the UK welfare system by EU migrants? The party supports the so-called ‘right to reside test’ so would they accept its axing at the behest of the European Commission and Court of Justice? Likewise, the party supports safeguards to prevent the rules of the EU’s single market from being set by the Eurozone bloc to the detriment of non-euro member states. Would Lib Dems still insist on staying in if in the longer term the EU became an extension of the Eurozone?

This all matters because in the event of the Coalition being extended post-2015, the two parties will have to hammer out a common position on EU reform/renegotiation prior to a 2017 referendum which Cameron has made clear is an absolute red line for him. Hopefully, Clegg will use the debates to flesh out his ideas for EU reform in greater detail instead of repeating discredited claims about 3 million jobs being lost in the event of an exit. Ultimately, with the public more or less split down the middle on the in/out question, reform is not only not only worth pursuing as an end in itself, but also as a means of securing an ‘in’ vote when the referendum eventually comes.

Behind the rhetoric is Clegg preparing the ground for accepting an EU referendum?

 

Nick Clegg in a speech today sheds some light on his party's Europe policy and more specifically on his thoughts on an in/out referendum. He says:

We are no longer asking if Britain will have a referendum on continued membership, we are asking when Britain will have a referendum on continued membership.

 

The parties differ on the timing. The Conservative party want one in 2017, regardless of what’s happening in Europe at that time: it’s a date chosen for internal party management as much as anything else. The Liberal Democrats believe it will be far better to have the referendum when a serious change to Europe’s rules, affecting the UK, next arises. But we all agree that it will happen at some point or another...

If you want to know my position, it's very simple: yes to staying in Europe; yes to reforming the EU and improving our relationship with it; yes to a referendum when the time is right.

On the face of it that is not a change. The Liberal Democrats have in the past promised in/out referendums on the EU to be held at the next treaty change. Cynics would point out that when the last major Treaty change came, on the Lisbon Treaty, the Liberal Democrats were less than enthusiastic on having a referendum. But, the wording here looks like a change in emphasis, opening up the possibility of future support - in turn perhaps also opening up for another coalition with the Tories.

What else is new? Nick Clegg has also made some welcome moves in other areas. For a former MEP and supporter of the Lisbon treaty's transfer of powers to the European Parliament he is refreshingly honest about the need to reinforce the powers of national parliaments in the EU decision making process. He says:

I want to see a much more active role for national parliaments in scrutinising EU decisions and policing the principle of subsidiarity. We're still not fully exploiting the provisions made for this under the Lisbon Treaty.

Beyond this his speech has some of the normal party political aspects. For instance he accuses the Conservatives of wanting a "unilateral renegotiation of Britain’s relationship with the EU", when what most are suggesting are EU-wide solutions - but he does rather half heatedly admit that:

Of course a future British Government will be able to cobble together a package of reforms with Germany and other member states with likeminded views on European competitiveness and so on.

 Good, that is a start, so lets get on with it...

  

Lib Dems set to officially endorse in/out referendum and Treaty change to secure single market safeguards

The Lib Dem Autumn Conference Agenda is unlikely to set many pulses racing but motion F35 caught our attention, as it concerns the party's EU policy. Assuming the motion put forward by the party's federal policy committee is approved by party delegates, as seems likely, it will become official party policy and will probably be included in the party's 2015 manifesto. This could prove significant in the event of another hung parliament and subsequent coalition talks with either the Tories or Labour.

The motion contains a number of detailed and specific points covering everything from the single market to the CAP and the EU budget, but two points are particularly significant:

"Guaranteeing full voice in the regulation and application of the four freedoms – of goods, capital, labour and services – of the single market for both euro and non-euro states in the next EU treaty." 

"Requiring that when the EU Act triggers a referendum for the first time, there should be an ‘In or Out’ referendum in which citizens across the UK can have their say on the new Treaty settlement and our relationship with the EU as a whole."

So we have a commitment to push for single market safeguards in any future Treaty negotiations, which is in itself a recognition that the EU is developing in such a way that necessitates different degrees of integration, and that the UK has to assert its interests in order to prevent the eurozone from writing the rules for the whole bloc (the double majority agreement on banking supervision could serve as a model here). For a party that until relatively recently supported the UK joining the euro this is a significant shift.

The referendum commitment is less of a surprise as Clegg and others have been hinting that an in/out referendum would be a matter of when, not if. The big difference between the two coalition parties when it comes to the referendum is therefore one of timing, with the Lib Dems rejecting the Tories' promise of a referendum by 2017 as arbitrary. However, the chance of there being an EU Treaty change transferring more powers from the UK during the lifetime of the next Parliament is very slim. There might be Treaty change but likely for Eurozone-specific measures (which still can have an impact on the UK by changing political dynamics in Europe but which would not trigger the EU Act).

On the face of it though, this would leave Labour as the only major party not explicitly committed to an in/out referendum at some point (although some would argue that the Lib Dems have promised a referendum before and not delivered).

Finally, it is also welcome to see the party explicitly call for "measures to enable national parliaments to contribute more directly to the development of EU policy and legislation", even if the policy document stops short of the 'red card' option outlined by Open Europe and endorsed recently by William Hague.

Nick Clegg: EU referendum a question of "when not if"

With David Cameron away in the US, Nick Clegg took to the dispatch box for Prime Minister’s Questions today. Unsurprisingly, there was no shortage of references to EU referendums, most of them of a hostile nature. Ahead of today’s debate on the ‘referendum amendment’ to the Queen’s Speech, Clegg was repeatedly asked why he would not support the calls for an in/out referendum as pledged in the infamous 2008 Lib Dem leaflet (calling for a “real” referendum on Lisbon) and in the party’s 2010 manifesto.

Clegg responded that this issue had been settled by the passing of the 2011 EU Act which contains a ‘referendum lock’ in the event of EU treaty change, and accused the Tories of “moving the goalposts” with their policy of an in/out referendum in 2017.

But, within this bit of rhetorical politicking, Clegg said something rather interesting. He said that, due to the 'referendum lock', it was a matter of "when, not if" there is an EU referendum "because the rules are bound to change" as a result of developments in the eurozone.

Clegg accuses Tories of moving goal posts on EU referendum BUT says matter of 'when not if' as EU rules bound to change triggering a vote
— Nick Robinson (@bbcnickrobinson) May 15, 2013

Well, if the rules are "bound to change" why aren't the Lib Dems actively supporting David Cameron's proposals to reform the UK's relationship with the EU - or at least putting forward their own vision - and then putting that to a referendum ? Or would the Lib Dems rather the rest of the EU changed the rules without active input from the UK Government? Good luck winning any kind of referendum on that basis Mr. Clegg.

How could the Lib Dems respond to David Cameron's upcoming Europe speech?

Earlier today we posed a guest piece over on Lib Dem Voice, looking at how the party could respond constructively to David Cameron's upcoming and long awaited Europe speech, which we reprise below:

The Westminster village might still be in post-holiday slumber mode, but a significant political event is due to take place only in a couple of weeks – David Cameron’s long awaited, ‘tantric’ speech on Europe. While the exact details remain unclear, Cameron could well argue that the UK’s terms of EU membership require revision, and that this should include the repatriation of some powers, after which the new package will be put to a referendum. So how should the Liberal Democrats respond? 

It could be argued that there has already been a pre-emptive response from Nick Clegg, who in his own recent EU speech described the unilateral repatriation of powers as “a false promise wrapped in a Union Jack”. Instead, he argued for pragmatic EU co-operation focusing on three things in particular: a tough budget settlement, defending and deepening the single market, and maintaining co-operation in the area of crime and policing. 

Meritorious as these are – even if there is a lively debate to be had on what institutional form the latter should take – they do not add up to a holistic long-term vision of Britain’s place in an evolving Europe. For example, given the current squeeze on public finances, the coalition is right to push for a freeze in EU expenditure, but this comes across as a time-specific damage limitation exercise without a broader vision for slimming down and rationalising the budget. Likewise, Clegg said he supports reforming and refocusing the EU, but has offered few concrete details in this and other recent public pronouncements. 

A new model of UK-EU relations is not only desirable but inevitable given that closer economic and political integration in the eurozone will render the status-quo null and void. As such, renegotiation is less of a threat to the UK’s EU membership and more of an opportunity to save it by placing it on a more democratically legitimate footing. Polls frequently show that such an option attracts a majority of public support when included alongside the binary ‘in/out’ question. Last year, detailed polling found a majority of UK public opinion backed such a move, including Lib Dem voters. 

The danger for the party is that it engages in the debate in too vague terms, thereby risking being left flat-footed when rivals reveal specific proposals. For example, the Fresh Start group of Conservative MPs has been busy preparing a comprehensive and detailed analysis of each key area of EU policy, alongside their suggestions for reform. If Lib Dems do not agree with their vision, they should at least be able to present a counter-proposal. 

A good place to look for inspiration would be Nick Clegg’s chapter in the Orange Book, written when he was still an MEP in 2004, containing some sensible yet innovative ideas for EU reform. Among other things, he claimed that it was democratically desirable for the flow of competencies to be a two-way street, arguing that “A liberal approach to the allocation of responsibilities to the EU should be founded on a rigorous application of the principles of subsidiarity and proportionality… Liberal Democrats should push for the reallocation of certain existing powers – including much of agricultural, regional and social policy”. In convincing terms, he made the case for a more flexible EU, more responsive to the needs of member states and citizens.

It is this critical yet constructive approach towards the EU which has been lacking in recent Lib Dem public statements on Europe, indeed, with some degree of irony, it could be argued that the party’s thinking on the issue risks coming across as conservative, while the Tories push ahead with a transformative agenda. It’s true that the debate about Europe in this country too often is framed in terms of British exceptionalism, and the UK has a bit of an image problem on the continent, seen as “jumping from veto to veto.” But Britain isn't alone in facing existential choices in Europe. If the party backs reform but views ‘unilateral’ repatriation as unacceptable, it should set out a credible new institutional framework for all 27 member states and look for allies in Europe. One such ally could be the Dutch liberal VVD party, whose leader, Prime Minister Mark Rutte, recently argued that the Netherlands would welcome a debate over whether Europe is involved in too many areas which could be done at the national level. 

Either way, as the debate in the UK and Europe intensifies, the party needs to be in a position to communicate to voters what its long term vision for Britain’s future in Europe is.

Could Europe be an unlikely area of consensus for the revamped Coalition 2.0?

Over on Liberal Democrat Voice's the 'Independent View', we argue that:

Following the bad blood within the coalition over the collapse of Lords reform and the constituency boundary review, there has been much speculation that the two parties will enact a policy ‘reset’ after conference season, with Oliver Letwin and Danny Alexander already reportedly working out the details. Most people looking for potential fresh common ground between Tories and Lib Dems would hardly place ‘Europe’ at the top of their list. However, while the parties are unlikely to ever see eye to eye on the EU, given political will, there are a number of areas of potential agreement.

For example, both parties already agree on the need to amend the Working Time Directive. However, in terms of immediate action and potential achievability, there is no better target than reforming the EU budget. While the UK and other member states struggle to balance their books, the EU budget has grown year on year despite the vast majority of spending going on policies at best irrelevant, and at worst outright damaging, in the fight to deliver the jobs and growth Europe so desperately needs. 

Around 40% of the budget still goes on the Common Agricultural Policy; mostly subsidies to farmers and landowners which act as an outright disincentive for modernisation given they are de-linked from any meaningful economic activity. It is difficult to think of a policy more offensive to liberal values than the CAP: market distorting, sustained by effective lobbying from vested interests, staggeringly wasteful and inefficient, and disproportionately harmful to the least well off in society via higher food prices. Moreover, despite the Commission’s rhetoric, the CAP’s ‘green’ credentials are poor. Slimming down and radically refocusing the CAP by explicitly tying it to environmental objectives such as biodiversity would not only be hugely efficient, it would add credibility to the coalition’s claim of being the ‘greenest government ever’.

Another area in need of overhaul is EU regional spending; the current structure involving all regions in all member states, irrespective of their relative wealth, is economically irrational. For this reason, spending should be limited to the least wealthy member states where it can have the biggest positive impact, an objective endorsed by Nick Clegg. This would save the UK around £4bn net over seven years which could be ploughed straight back into developing the UK’s least wealthy regions, helping the Lib Dems to achieve their long-standing ambition of ‘rebalancing’ the economy away from its over-reliance on London and the South-East.

These measures would require the coalition adopting a much tougher line in the on-going negotiations over the EU’s next long-term budget than it has done, or else risk the existing flawed spending patterns becoming locked in until 2020. While achieving these reforms will not be easy, if pitched correctly, they could command support all across Europe.

These measures would deliver a number of wins; saving UK taxpayers’ cash, soothing coalition tensions, and securing electoral popularity – Lib Dem members and voters are in tune with national opinion in wanting more national control over many policy areas currently significantly influenced by Brussels. Having shown that they can be ‘tough’ on the EU, Lib Dems would then have greater credibility when making the positive case for its continued involvement in other areas.

Coalition rope pulling - the European Arrest Warrant

Yesterday's news that a British man has been served with a European Arrest Warrant (EAW) in a high profile case he was cleared of by a Portuguese court in 1995 has again raised the issue of the malfunctioning European Arrest Warrant (EAW).

The problems with the EAW are well documented and mostly flow from the flawed assumption that all European justice systems are broadly of the same quality and tradition - the reality is that they differ - as well as an absence of civil liberties checks and a proportionality principle, some hand down better justice than others.

That being the case, there is a need for stronger safeguards before the UK hands over its own citizens to other countries. Reform has been spoken of for years (the need for it even admitted by the European Commission) so why the muted British response? As with much of the Government's programme it comes down to internal Coalition horse-trading. Here is how the parties stack up:

Conservatives:

• As a backbench MP, David Cameron described the EAW "highly objectionable":

"I find the European arrest warrant highly objectionable because of the problem of dual criminality... let us be clear about what it means. One of our constituents goes to Spain on holiday, commits an alleged offence, and returns home. All that is necessary for him or her to return is that the warrant is correctly filled out… and that a district judge in the UK sees the warrant and judges that the offence falls into one of the 32 categories. At no time is it asked whether the offence is a crime in this country."

• 102 Conservative MPs backed the conclusions of Open Europe's recent report which argued for the block repatriation of EU powers on crime and policing, with the option of opting back in to selected measures.

• Conservative MPs and MEPs have long campaigned for reform of the EAW. Conservative MPs, including David Cameron, voted against the EAW in the House of Commons and made EAW-reform a part of their last European Parliament Election Campaign saying “Conservative MEPs will uphold civil rights, and will work to avoid a repeat of the lack of safeguards in the European Arrest Warrant.”

Liberal Democrats:

The issue of the EAW cuts across two Liberal Democrat core beliefs; a commitment to European co-operation and Civil Liberties.

• Nick Clegg recently defended the EAW as "indispensable" though also admitting that it needed reform.
• Liberal Democrat MEPs helped to shape the EAW in the European Parliament; Sir Graham Watson MEP was the Parliament's rapporteur (Nich Clegg and Chris Huhne were both MEPs at the time)
• Ed Davey, now a Business Minister (then Lid Dem Europe's spokesman) was keen on the EAW at the time of the Lisbon Treaty debates, arguing the Conservatives wished to create a “Costa del Crime”.
• Curiously Nick Clegg has also championed reform of other extradition arrangements, such as the US/UK extradition treaty calling it "lopsided and unfair".
• In fairness, Lib Dems have also called for reform of the EAW, with MEP Baroness Ludford highlightingd the EAW's problems (she is also a patron of Fair Trials International).

So what will happen when a decision is forced on the Coalition in 2014?

As we have highlighted in a recent report, under the Lisbon Treaty, the UK will have to decide by 2014 whether to accept the jurisdiction of the European Court of Justice (ECJ) over the EAW and 130 other EU Crime and Policing measures. At this point (or preferably before) the Coalition will have to decide whether it wants the ECJ to have permanent jurisdiction over an unreformed EAW or leave the EAW altogether.

The Conservatives and Liberal Democrats have long held opposing views on the EAW that will be difficult to climb down from and make the collective decision very tough. In the end it is likely the loudest voice will prevail - and this could well turn into a loud and noise debate.

But perhaps there is another way forwards. There is a growing consensus that the EAW and extradition laws generally need to be reformed, something the Liberal Democrats recognise with regards to the UK/US extradition treaty when the wider issue of Europe is not at stake. It should therefore be possible to find a middle ground. This would be for the Coalition to opt out of ECJ jurisdiction over the unreformed EAW and argue for reform in order to make it possible to rejoin it later. For this to happen it would be best to make the decision now in order that the substantive negotiation is completed in time for 2014.

Internal coalition disagreements aside, surely this is an area where all sides stand to gain from EU reform?

So what do Lib Dem voters really think about Europe?

Over on Lib Dem Voice's 'Independent View' we've published a guest post looking at the what the party's voters and members really think about the UK and Europe, and how we think the leadership ought to respond:

In the polarised and often exaggerated UK debate on the EU, the Lib Dems have often been caricaturised by much of the press and Tory MPs as being unreservedly in favour of greater EU integration or even an ‘EU super state’. The truth is of course far more nuanced.

That’s why a new YouGov/Cambridge cross-country poll out earlier this week is so interesting. It shows that a majority of UK voters (53%) support either no further EU integration or a looser arrangement. Only 14% said they wanted more integration. These attitudes span the political divide, with 50% of Lib Dem voters saying they wanted either a looser relationship with the EU or outright withdrawal. On the thorny question of whether primary responsibility for specific policy areas should lie with national capitals or Brussels, Lib Dem voters want more national control over areas such as police and crime, employment laws and trade almost as much as the average UK voter, and even more on agriculture.

Source: YouGov-Cambride poll ‘Cross-country attitudes on Europe’, 13 March 2012

Similar trends can be seen in the Voice’s own polling (here and here) suggesting that both Lib Dem members and voters would reject working closer economic and political union in Europe. But while Lib Dem politicians have criticised individual aspects of EU policy, such as the Working Time Directive or the Common Fisheries Policy, on the whole the party leadership has so far not put forward an alternative vision for the EU-UK relationship.

This is worrying for two main reasons: first, as today’s poll show, the gap between what voters and the political party think on Europe is widening – a trend which is seen in party politics acrossEurope. This isn’t healthy in the long-run. Secondly, the eurozone crisis is changing the wayEuropeoperates, pulling those countries that share the single currency closer together, forcing those outside to decide what kind of relationship they want with the core. In short, the status quo is no longer an option. Britain needs a new vision for European cooperation, and so do the Lib Dems.

The principles of localism, which have been overwhelming endorsement by the coalition, and the Lib Dems in particular, could serve as the basis for a new, positive vision of Britain in Europe. In a recent report, entitled “The Case for European Localism”, Open Europe argued that the EU ought to focus more its core competencies of boosting trade and the Single Market, and less on political institution-building. National parliaments would be accorded a more prominent role in EU affairs, something that would increase democratic accountability and transparency. Far more decisions should be made nationally, regionally or locally.

European localism would act as an overarching strategy, within which the UK could chose individual areas where it wanted to maintain a bigger role for the EU, such as environmental policy, but devolve competencies over other areas, such as crime and policing, regional policy, agriculture or social and employment law.

With overwhelming backing from voters, the Lib Dems have a valuable opportunity to capture the centre ground on the EU debate and fashion a new, vibrant and more nuanced narrative that moves beyond the tired in/out debate.

How will the leadership respond?

Of Pots, Kettles and Lib Dem MEPs

Before we get going, let us qualify the following post by saying that the Lib Dem MEPs have been doing a reasonably good job, particularly in areas such as financial regulation and transparency. Unfortunately, they seem to have dug themselves into a bit of a hole in this instance…

Lib Dem MEP Chris Davies moved to criticise Conservative MEPs today, for “refusing to back the government’s position” over the increase of the EU’s 2020 CO2 reduction target to 30%. The Conservative MEPs suggest that the target should not be increased from the current 20%, despite the Government's policy to support the increase. Davies went on to say that the Conservative MEPs were demonstrating “their real views about efforts to curb global warming”, and that "to be sure of success they need Conservative support. All indications are that they will not get it."

It’s all well and good to highlight disparities between the Government and the Conservative party at large, but, unfortunately, this time, the Lib Dems seem to have forgotten that they are also part of the Government…

As we’ve already noted, Lib Dem MEPs voted last month to scrap the UK’s rebate and in favour of an EU tax. Not only was this clearly against the Government’s position it was also expressly against their manifesto for the 2009 European elections.

Pot. Kettle. Black. No?

Is your MEP in favour of EU taxes?

One of the main effects of the Lisbon Treaty was that MEPs were given a lot more power over EU decision-making, at the expense of national governments and parliaments (since the Treaty also transferred substantial powers away from member states, and therefore national parliaments.) This was an element of the Treaty which governments clearly didn't think through properly. In practice, the European Parliament has its own logic, its own cycle and its own agenda, which doesn't really correspond to public opinion in member states. In short, to give so much power to cheerleaders of further EU integration at a time when further EU integration is the last thing most citizens want was a pretty silly idea.

National governments are now paying the price.

If you want a clear example, consider MEPs' vote this week on the shape and size of the EU's next long-term budget (likely to run between 2014 and 2020). The Lisbon Treaty gave MEPs full co-decision powers over the long-term budget, meaning an effective veto over anything national governments decide.

In the vote this week, MEPs voted 468 against 134 (with 54 abstentions) for the 'big three', defying what many national governments had called for:

• An increase of at least 5% to the EU budget over its 2013 level
• A direct EU tax to fund the EU budget
• A phasing out of all national rebates, including the UK's.
  

The phasing out of the rebate is politically complicated as it pits net contributors that have a rebate from the EU budget (such as the UK) versus the net contributors without a rebate (such as Denmark and France), so let's leave this one for a sec. However on the first two, you'd be hard pressed to find support amongst citizens (at least in those states that have to cough up) for any increase to the EU budget or an EU tax (for a whole range of reasons). As we've repeated so many times that it's getting old, MEPs are doing themselves no favours by constantly churning out their demands for more - ranting like this is hardly going to score them many points with citizens either. Their biggest hurdle, we suspect, will be Germany (which will contribute the most to the EU budget by far post-2014).

So, how did the UK MEPs vote? The table at the bottom gives a break-down of their votes on key amendments.

From the looks of it, Lib Dem and Labour MEPs voted in favour of an EU tax, while Lib Dem MEPs seem to have voted against an amendment calling for national rebates to be maintained. So if Lib Dem MEPs had their way, both the UK's gross contribution (under the 5% increase) and its net contribution (because the rebate would be scrapped) would increase pretty significantly.

We also note that the Lib Dems stated in their election manifesto for the European elections in 2009 that

"We do not see the need, in the current context, for any significant growth in the budget’s size, nor the abolition of the British rebate."

The Lib Dems' voting record this week doesn't suggest that they honoured this pledge - or are we missing something (i.e. was there any other amendment to the same effect that they voted for instead?).

Anyway, check out the table to see how your MEP voted (click to enlarge).

Lib Dems abstained on Lisbon Treaty referendum because they thought it "would fail"

One of the latest leaked US diplomatic cables has confirmed what many of us had suspected all along. The Lib Dems' U-turn on their pledge to hold a referendum on the Lisbon Treaty was not motivated by a principled preference for an 'in or out' referendum on EU membership but by a belief that a referendum on Lisbon would be lost.

Here's the relevant passage:

A Very Bad Day: The Lib Dems and The EU Reform Treaty

--------------------------------------------- ---------

2. (SBU) March 5 marked the worst day for the Lib Dems since one infamous week in January 2006, when the party became the laughing stock of Britain after sex scandals involving two of the four candidates to succeed leader Charles Kennedy emerged one right after the other. This time around, the party imploded in the House of Commons over a Conservative Party motion to hold a nationwide referendum on the Lisbon Treaty. The Lib Dems' convoluted official position on the referendum was part of the problem. As Clegg sought to explain it to the public, the real issue for his intensely pro-Europe rank-and-file was not the Lisbon Treaty itself, but confirming UK membership in the EU once and for all. The Lib Dem official position therefore was to propose an alternate "in or out" referendum on whether the UK should remain in the EU, and abstain on the competing Conservative motion to hold a referendum on just the Treaty itself.

3. (C/NF) This position left both the pundits and the public scratching their heads: why would the UK's most pro-Europe party, whose new leader actually worked for the EU from 1994 to 1999, abstain on a vote on the Treaty? The answer, senior Lib Dems have confessed to us, is that the party leadership believes a referendum on the Lisbon Treaty would fail.

Hmmm, we kind of suspected that was the motive. Or, actually, it was blatantly obvious as the Lib Dems flip-flopped like crazy on the Lisbon Treaty.

All of this brings back some horrible memories...

If it weren't for those pesky EU rules...

Last week’s vote on student fees saw thousands of angry protestors descend on Westminster, to no avail as the proposal has now passed both houses. This is obviously a very thorny issue for the Coalition - and the Lib Dems in particular.

But what's interesting is that the main counter proposal to hiking student fees was a proposed graduate tax. Only thing, it isn't really an option, due to two rather large glitches - foreign students and EU law.

A tax would only cover those residing and earning money in the UK, thereby allowing foreign students to circumvent paying. Considering that the UK is home to some of the best universities in Europe, and there are currently about 120,000 students from other member states at British universities, this could potentially mean substantial financial losses to the UK university system; losses that would have to be paid back by graduates staying in the UK.

A solution to this dilemma would be to have a two-tier system whereby a graduate tax would apply only to UK students, and university fees would apply to the rest. However, this is contrary to rules enshrined in the Maastrict Treaty - which determine that EU citizens studying in another EU member state must be treated under the same conditions.

To be fair, British students are allowed to go abroad and enjoy European universities under the same rules as all other EU students - which does count for something (which more UK students could take advantage of - language and grammar would be two particularly good areas to focus on). But it's amazing how EU rules seem to creep into everything these days - no matter how domestic of a matter it would appear.

Quite irrespective of the merits or drawbacks stemming from freedom of movement that is.

Lib Dem voters on EU membership: 31% want to stay - 42% want to leave

Here are some results from a fresh poll from Angus Reid on the attitude of British citizens to the EU (an online survey of a representative national sample of 2,002 British adults):

• In the event of a referendum on the UK’s EU membership, nearly half of Britons (48%) would vote in favour of pulling out, while 27% would vote to stay.

• Interestingly, 42% of Lib Dem voters would vote for the UK to leave the EU in a referendum (65% of Tories, 36% of Labour) against only 31% who said they want Britain to stay.
  

• 59% say EU membership has been moderately negative or very negative for the UK (30% and 29% respectively).

• Since June, the proportion of Britons who say the EU has been very positive for the UK has dropped from 7% to 4%. Back then, 31% regarded it as moderately positive, versus only 25% now.

• 80% would vote in favour of the UK maintaining the pound.
  

• 34% of 18 to 34 year olds feel the EU’s effect on the UK has been negative. 37% of them would vote to stay, while 32% would vote for the UK to leave.

See the full poll here. As with other poll results, it's clear that the EU's popularity continues to drop.

But the most interesting result is that Lib Dem voters - whose party often is presented as the UK's last europhile outpost - would come out against EU membership in such great numbers if faced with a referendum.

It just goes to show, in regards to the EU, there is a disconnect between the grassroots and the party leadership, and splits within the party on the issue might not only be a Tory phenomenon...

Let CAP take the Lyon’s share

Two weeks ago, in Merida (Spain), the UK’s new Agriculture Minister Caroline Spelman called for “reduction and re-orientation” of EU Common Agricultural Policy (CAP) spending. “We cannot leave aside the fact that Europe is without money”, she said.

Unfortunately, Ms. Spelman’s demands seem not to have made it across the Pyrenees. In fact, last Tuesday in Strasbourg the European Parliament’s Committee on Agriculture and Rural Development endorsed a report on the future of CAP after 2013. Unsurprisingly, the report wasn’t exactly calling for fundamental reform of the CAP – MEPs remain staunch defenders of this wasteful policy.

The text reads as follows: “To meet the new priorities and the expectations of all EU member States, the CAP budget amount needs to be at least maintained at 2013 levels in the context of the new financial perspectives”.

You don’t need to be a seasoned Eurocrats to understand that “at least maintained” probably means “increased”.

Now, this seems like business as usual – the UK is trying its best to reform a policy which is protectionist and 50 years out of date (and which still absorbs more than one third of the whole EU budget every year, despite the fact that less than 5% of Europeans work in the agricultural sector), with the usual suspects (the European Parliament, France, Spain, etc.) doing everything to stop such effort.

Only thing is, this time the report was drafted by… a British Lib Dem MEP! The MEP in question is George Lyon (see the picture above), representing Scotland.

In other words: while at home the coalition is preaching the need to cut waste and reform the EU budget, in Strasbourg a Lib Dem MEP drafts a report opposing any downsize of one of the most wasteful and irrational spending programmes in recent history – the CAP. That the Conservatives and the Lib Dems aren’t on the same wavelength on Europe is one thing, but that the Lib Dems are sending out such “mixed” signals on a key EU policy is concerning, to say the least…

The coalition government must stand up for EU reform

In the Telegraph today, we argue:

Europe is in desperate need of reform in order to become more democratic, economically dynamic and modern. The Con-Lib government has the potential to become a powerful force for such reforms. But it must have the courage to stand up for these changes both abroad and at home. In the end, this would benefit Europe, Britain and the coalition itself.

Read the full article here.

What does the Con-Lib coalition offer on Europe?

As we detailed in our press release today – the Con-Lib coalition Government deal on Europe has some things which reform-minded people, such as ourselves, can be happy about, and some things to feel a twinge of disappointment over. A basic summary of our thoughts on the matter is here:

The Conservatives have retained their pledge for a ‘referendum lock’ – guaranteeing that any future transfers of power to the EU be subject to a referendum – which is welcome, and could give citizens the sense of ownership over EU policies that has been missing in recent years.

They have watered down their pledge for a UK Sovereignty Bill – saying instead only that they will “examine the case” for such a Bill. However, since it was never crystal clear how such a Bill might work in practice, we aren’t particularly vexed about this one.

In a somewhat cynical move, the new Government has also made it clear that the UK will not join, or plan to join, the euro over the lifetime of the next Parliament. Since we would have sooner seen Bill Cash say “I agree with Guy (Verhofstadt)”, than a political party recommend joining the euro in the next 4-5 years, the euro question was effectively neutered anyway.

Rather disappointingly the Conservatives appear to have shelved their plans to elevate the position of Europe Minister to Cabinet – this would have promoted the importance of the European Union in UK politics and shown that the Government was ready to become more engaged and forthright in promoting the UK’s interests in Europe.

The new Europe Minister is David Liddington – and not Mark Francois who has shadowed the position since 2007. While we hope David Liddington will approach EU reform with the tenacity that is required, it is a disappointment that the continuity Mark brought to the role over recent years (amid ever-changing appointments on the Labour benches) will not be maintained under the new Government.

The Conservatives have also dropped their pledge for an opt-out in criminal policy, and instead said they will approach any new legislation in justice and home affairs, and whether or not to opt-in, on a “case-by-case basis”. This is clearer a great deal closer to the position of the Lib Dems, who have favoured much more EU integration on justice and home affairs matters than any other party.

The coalition agreement has also dropped the pledge to seek an opt-out from the Charter of Fundamental Rights, and for the repatriation of powers in social and employment policy. Instead, the agreement only reads: “We will examine the balance of the EU's existing competences and will, in particular, work to limit the application of the Working Time Directive in the United Kingdom.”

This is a touch disappointing, as we have previously argued that this is an achievable, and desirable goal – giving the important impact such legislation has on the UK economy (and which is set to cost £71 billion over the next decade).

However, a key concession on the part of the Lib Dems in the coalition agreement would seem to be this pledge that: “We agree that there should be no further transfer of sovereignty or powers over the course of the next Parliament.”

While the Lisbon Treaty transferred a huge number of competences from member states to the EU, it is clearly a welcome step that the Government has committed to no new transfers of power over the next five years.

If interpreted strictly, this pledge has the potential to be very radical indeed, with Angela Merkel stepping up her calls of late that some kind of Treaty change is desirable to strengthen the rules of the eurozone. The Commission's new proposals, set out on Wednesday, do suggest that the possibility of further transfers of economic competence to the EU may be on the horizon.

The Greek crisis has meant that commitments to no more ‘institutional change” for ten years are all well and good, but countries such as Germany need some reassurance that the rules of monetary union will be toughened up and German taxpayers won’t be called on to bail out other eurozone countries who have run into financial difficulties.

Therefore a strict pledge that no more powers should be transferred to the EU/or if they are they should be subject to a referendum, presents the Government with the opportunity for the leverage in negotiations it needs, e.g. on the EU budget.

Is the Con/Lib agreement a good deal?

Well, some of the most important bits from the Conservatives’ Europe policy are still in there – notably the referendum lock and a pledge to transfer no new powers to the EU.

It is a disappointment to see a weakening in their stance on social and employment policy and justice and home affairs, but all marriages need compromise and given the gulf that lay between the two parties on the question of Europe, there is reason not to be too glum.

While the Europe issue may be a ‘sleeping dog’ at the moment – rest assured that the preparations for a full-throttled push for a European economic government will mean that the question of new transfers of powers are not far off.

One reason to oppose a Lib/Con coalition

For all the talk now of the Lib Dems as the kingmakers, wooed by both Labour and the Tories for their 60-odd votes, it is possible to forget that Nick Clegg is not some shiny, unblemished debutante, but a seasoned politician with his own electoral baggage that could throw up sticking points with both Tory and Labour backbenchers (should Con-Lib coalition talks end in much ado about nothing). Indeed, if there is one reason for the Conservatives to turn around and attempt to go it alone with a minority Government, it’s the Lib Dems’ appalling record on whether British voters should be given the referendum they were promised on the Lisbon Treaty.

The expression ‘flip-flopping’ doesn’t even begin to describe Nick Clegg’s behaviour when the issue was on the table in 2008 (see here for our reaction at the time).

Let us re-cap:

The Lib Dems, just like Labour and the Tories, promised in their 2005 election manifesto to put the European Constitution to a public vote. In 2007, in a bid to circumvent the No votes in the Netherlands and France, the EU Constitution was renamed the Lisbon Treaty and articles were recast, but the content remained virtually identical.

A bill to put the Lisbon Treaty/EU Constitution to a referendum went through the Commons in March 2008 (after the Commons debate on the Treaty was cut short). While most Labour MPs voted against a referendum, and most Conservatives voted in favour, Nick Clegg ordered his MPs to abstain on the vote, insisting that the Lib Dems were instead in favour of a referendum on the UK’s continued membership of the EU. Three frontbench Lib Dem MPs were forced to resign because they felt bound by their election promise and decided to defy Clegg by voting in favour of a referendum on the Lisbon Treaty.

After the failure of the referendum amendment in the Commons, Nick Clegg continued to insist that his party was committed to the idea of a referendum on Britain’s continued membership of the EU. He said : “I argued for an In-Out referendum – and have done so for years – because I am convinced it is the right thing for Britain”.

However, the Lib Dems tabled no amendment to that effect when the issue was discussed in the Lords a few months later, and actually abstained from voting for an in/out referendum when such an amendment was put down, and instead voted in favour of the Lisbon Treaty. If the Lib Dems had abstained, like they did in the Commons, the referendum would have been passed.

With the Lisbon Treaty ratified in all member states, the in/out referendum pledge then appeared to have been dropped, with former party leader Sir Menzies Campbell saying in December 2009 that there was "no public appetite" for such a vote since the Lisbon Treaty was now in force. However, the pledge then re-appeared in party’s election manifesto.

Absolutely extraordinary. Perhaps we have too high expectations, but should politicians – particularly those who profess to want to ‘clean up politics’ and reconnect with voters – really get away with this kind of schizophrenic behaviour, which leaves voters wondering exactly where they stand on their manifesto pledges?

If we can put aside any potential uncertainty in having a less-than-secure minority Government in place for at least a year and that is a big If – (for injecting confidence in the economy and for the ability of the UK to influence what’s happening in Brussels at the moment), this would be as good a reason as any for David Cameron to go it alone – not least since a key challenge for MPs over the life of the next Parliament is to be able to restore trust in politics.

Footnote:

On a similar, but distinct, question of referendum promises, Nick Clegg spent last week doing some serious backpedalling in a bid to try and distance his party from their pledge to join the euro, which they featured slap band in the middle of their election manifesto.

On Jeremy Vine’s Radio 2 show last week, Nick Clegg couldn’t have distanced himself from all of his previous talk of the benefits of ‘anchoring’ our currency to the euro any faster. When asked by Vine: “Of course, but just to bring you back as it is quite important this – because you did want us in the single currency in 2003, and the other two didn’t, and you don’t want us in now, and so I’m just checking that you accept you’ve changed your mind”, Clegg said:

“No, let me be clear – in the 2005 General Election, which was the general election which counts, we did not recommend, as we’re not recommending now, that we should go into the euro. We are saying that there may be economic circumstances, and by the way the Labour government under Gordon Brown’s tests has said something very similar, there may be circumstances where you can imagine that might be the case. It’s not for now, we’re not recommending it for now, we would only ever recommend it if it was good for the British economy, not out of sentiment, because it’s good for savings and jobs and so on.”

Quite clearly “there may be circumstances where you can imagine that might be the case”, is not the most ringing endorsement for joining the single currency ever to pass one’s lips, and yet their official position remains that joining the euro is in the long term interests of the UK? Perhaps the events of the weekend may be enough to convince some of them that such a scenario would never come to pass.

Where would a Lib Dem/Tory pact leave the EU?

So both Gordon Brown and David Cameron have extended an offer to the Lib Dems to begin talks to see whether some sort of coalition, however loose, could be agreed upon to form a Government. But Nick Clegg has said that it is for the Conservatives, as the largest party, to try and form a workable majority first.

Speaking earlier today David Cameron clearly opened the door to a potential coalition with the Lib Dems. There has also been speculation that senior members from the Lib Dems could be offered roles in a Conservative-led government in return for their party's support. However, Cameron also set out the manifesto pledges that his party would not be willing to compromise on, including pledges on immigration, defence and the commitment that "[no] government should give more powers to the European union". According to reports, Mr Clegg and Mr Cameron have already spoken this afternoon and agreed to explore possible deals.

Now, there are lots of things to say about this deal or no-deal. Quite clearly, although many European countries find this type of political uncertainty business-as-usual following a national election, pro-longued uncertainty over who governs this country is in no one's interest. Certainty is particularly important for cleaning up the public finances and injecting confidence into the markets (which are struggling to come to terms with the debt crisis and contagion effect facing the eurozone).

Much will happen before all is said and done, and other governing arrangements might triumph in the end - but just a note on what a potential Lib Dem/Tory coalition might mean for the prospects of EU reform, and the UK's relationship with the rest of Europe:

While electoral reform and the economic recovery will be the key issues in such an arrangement, the EU is clearly a dividing line between the Lib-Dems and the Conservatives, with Nick Clegg still committed to joining the euro in the long-term, favouring a common EU immigration policy and calling for further integration in justice and home affairs. Should the two parties agree to a coalition arrangement, especially if involved a Lib Dem cabinet position, the Conservatives could naturally find it more difficult to push through some of their key policy pledges on Europe. In particular, the Conservatives might fail to get support in Parliament for their flagship policy of a 'referendum-lock' - a law that would require every future transfer of power to the EU to be subject to a referendum in the UK (also 'the sovereign bill' might suffer but it's unclear how meaningful such a bill will be in practice in the first place).

The Conservatives and the Lib Dems could also clash on whether the UK should opt in to the EU's growing number of initiatives in immigration, policing and security policy. Over the next five years, there are a range of key decisions a UK government must take in justice and home affairs, as the Lisbon Treaty drastically accelerates EU integration in this area. Ambitions to opt out of some parts of EU employment law could also be complicated by a Lib Dem/Conservative arrangement.

Needless to say, none of this will go down well with Tory back-benchers or grass-roots.

Other key areas, such as the upcoming negotiations on financial services legislation (in particular the AIFM Directive, set for May 18) and talks on the EU budget, will not necessarily be profoundly affected by a coalition arrangement, since all three main parties tend to broadly agree on substance (although perhaps not on strategy and tone).

However, it's clear that the Lib Dems are out of step with the British public on the EU. Quite apart from the possible merits of a coalition in other areas, it would be most unfortunate if the Conservatives allowed a deal with the Lib Dems to kill off future momentum for EU reform. As we've argued before, Europe is changing - with the eurozone cracking and people across Europe seriously starting to question whether the current model for European integration is sustainable (most people already know it's not democratic) - the long-term prospects for a UK government to find allies and change things in the EU for the better are greater now than in any time in recent history.

Cameron should therfore stand firm on his ideas for EU reform in the talks on a possible coalitionwith Nick Clegg.