Merkel suggested new treaties would be need for fiscal cooperation

To referendum or not to referendum? Mixed messages on EU strategy

To referendum or not to referendum? Mixed messages on EU strategy

By Ian Dunt

Nick Clegg and Iain Duncan Smith issued different assessments of the requirements for a referendum on the EU this morning, leaving voters no more certain of the government's intentions.

Appearing on the Andrew Marr programme Mr Clegg said he didn't believe there needed to be a UK referendum over moves to closer fiscal union on the continent.

"It will only take place if there is an additional surrender of sovereignty from us to Europe," he said.

"The test is if we give up sovereignty to the EU. The changes now required are required only in the euro 17 [eurozone countries]."

At almost exactly the same time, welfare secretary Mr Duncan Smith was outlining an entirely different test to Sky News, saying "substantial changes that affect Britain" would trigger a referendum.

"If there is major treaty change we have to have a referendum," he said.

Under Mr Duncan Smith's assessment the UK would be legally required to hold a referendum if changes in Europe affect Britain significantly – an almost inevitable eventuality, given the UK economy's reliance on eurozone stability.

Under Mr Clegg's conception, the UK would actually have to lose powers to Brussels before a referendum was triggered.

The referendum lock was originally a proposal of David Cameron which the then-opposition leader needed to placate eurosceptic fears following the Lisbon treaty.

Mr Cameron is desperate to avoid a referendum, which would shine a spotlight on coalition divisions and provide a massive distraction in Britain and Europe during a moment of economic crisis.

Saying the EU needed to improve competitiveness and protect its currency, Mr Cameron told reporters: "Neither of those things actually require treaty change."

The murky qualification for a referendum has prompted frantic activity in Downing Street, as it tries to persuade European leaders to downplay their language about the changes being faced on the continent.

British interests are something of an afterthought in Europe however, especially given its absence from the eurozone and its resistance to plans to implement a financial transactions tax due to its effect on London.

Downing Street tried to convince Nicolas Sarkozy not to mention treaty change in his speech on Thursday, but it was roundly ignored.

The next day the French press totally ignored a meeting between the president and Mr Cameron, which had originally been set to be hours long but was downgraded to a swift working lunch.

German chancellor Angela Merkel then went further than anyone else, saying European states had already started working on closer fiscal union.

"We are not only talking about a fiscal union, we are beginning to create it," she said in a speech watched closely around the world.

"We need budget discipline and an effective crisis management mechanism. So we need to change the treaties or to create new treaties."

While Ms Merkels intervention may have caused jitters in Downing Street, her plan would at least need to be agreed by all 27 EU members, giving Britain the chance to secure significant concessions in exchange.

That would probably involve safeguards for the City of London and the right to veto eurozone regulations which affect the rest of the single market.

Mr Clegg admitted this morning that the single currency project was in a moment of unique vulnerability.

"There's no doubt the whole edifice is now skating on very thin ice indeed," he said.

"Any reasonable person must wish the French and German governments the best of luck."