Cameron eyes deal with Merkel

David Cameron will today tell Angela Merkel, German chancellor, that he will back her plans to strengthen economic union in the eurozone, but only on condition that he wins safeguards to protect the City of London from unwelcome European legislation.

In what are expected to be tense talks in Berlin, Mr Cameron will restate his opposition to a Franco-German proposal for a so-called Tobin tax on financial transactions, which he believes is just one of a number of European initiatives that will hobble the City’s competitiveness.

Ms Merkel is seeking a limited change to the European Union treaty to enshrine tougher fiscal discipline among the 17-member eurozone and is canvassing support for the idea ahead of a European summit in Brussels next month.

Mr Cameron will tell Ms Merkel he is prepared to accept the treaty change – which has to be approved by all 27 EU members – but that he will seek some kind of “emergency brake” mechanism to protect the City from discriminatory behaviour in exchange.

The move will cause irritation in many European capitals and will be seen as further British obstructionism. Volker Kauder, parliamentary leader of Ms Merkel’s Christian Democratic Union party, this week accused the UK of “defending only its own interests”.

But Mr Cameron is facing fierce political pressure from his own Conservative party. At least 100 MPs want the prime minister to use a European treaty renegotiation to reclaim powers over economic and social policy from Brussels.

Today’s meeting in Berlin will see Mr Cameron set out a precarious new policy, which seeks to offer some comfort to his restive MPs while hoping to avoid a full scale confrontation with key European partners.

Mr Cameron has concluded that if Germany wants only a limited “tweak” to existing treaties to strengthen the eurozone, he will insist only that the new arrangements do not lead to the 17 eurozone countries acting as a caucus to impose their will on the single market.

There are particular concerns that the eurozone might accelerate measures to regulate the City and that decisions might be stitched up while Britain is out of the room.

But the prime minister will not seek a wholesale repatriation of powers until there is a much broader rewrite of the Lisbon treaty – a strategy that will anger some Tories.

The private hope among some in Downing Street is that such a negotiation would be so fraught across 27 member states it would not happen in the foreseeable future, avoiding a confrontation with other EU countries that could put strains on the coalition.

“You have to calibrate what you are demanding for your own country,” said one senior British government figure, adding that the idea of a big treaty revision when there is “a raging fire” in the eurozone was simply not credible.

Ms Merkel has been explicit in calling for a top-to-tail overhaul of the EU, including the introduction of elections for a European president. But the British are confident that this “will not be on the table” in the near future.

The prime minister must find a delicate balance between seeking to “exact a price” for supporting treaty change, while at the same time ensuring the Germans do not decide to achieve their goals via a separate agreement with eurozone countries.

There are fears that such a breakaway group could see the creation of separate institutions from those in Brussels, potentially diluting the UK’s influence.

Separately, Mr Cameron will visit Brussels today to meet José Manuel Barroso, European Commission president, and Herman Van Rompuy, EU president, for talks ahead of the Brussels summit and to discuss the prospects for a limited treaty change.