Denis MacShane: Why the future of Europe is the issue that won’t go away

But lurking behind the post-mortems on the three days when the state lost control of the streets is another much graver political question. Just as Ireland was the issue that divided British politics in the 19th century, Europe is emerging as the 21st century issue which is causing a maximum headache for all political leaders.

For 10 years, successive Conservative opposition leaders promised their activists, and the nation, a Eurosceptic future if ever the Tories won power. But the iron truth is that Euroscepticism works in opposition but Ministers have to be Eurorealists when they accept the seals of office.

None more so than David Cameron. He has told unhappy Tory MPs that there is no question of an in-out referendum on the EU. He has also had to point out that Britain does more trade with Ireland than with China and India. Thus shipping billions of taxpayers’ money via the EU or the IMF to stop economic collapse in Britain’s trade partners is a painful necessity.

Far from the emerging economies being the saviour of an offshore Britain, all that China, India, Brazil, Russia and Turkey want to do is increase their exports to us while decreasing imports of made-in-Britain goods and services. The first victim of the eurozone crisis has been the City. Nine out of 10 banks in the City are foreign-owned and owe no loyalty to the UK. The British Stock Exchange has suffered bigger losses than EU bourses.

In the past, anaemic European growth was offset by stronger US performance. But the Alan Greenspan era is over. While European politicians were criticised for all being on holiday, American politicians were all present in Washington and made such a disastrous hash of squabbling among themselves that perhaps it would have been better had they been on vacation.

The Chinese could hardly believe their eyes and promptly lectured the Americans on the need to return to coherent capitalism and slash spending and debt. Karl Marx is turning in his Highgate Cemetery grave as the last great nominally Communist power on earth gives the United States lessons on economics. However, the Chinese should be careful about what they wish for. If the US does go in for British-style cuts and austerity, who will buy all the made-in-China goods waiting in containers in Shanghai and Shenzhen for export to the US? US debt pays for China’s export boom. In fact, the absence of a co-ordinated world response to this crisis has made it worse. Leadership in Europe or on Capitol Hill has been utterly absent.

Even the most fervent of pro-Europeans has to admit that the EU institutions have failed utterly to rise to the needs of the crisis. Instead, there is a question mark over the future of the euro. But, if the single currency goes, it will take the single market down with it.

“Adieu to the EU” may be a welcome slogan in some quarters but it will plunge Britain and the western liberal free trade democracies into as big as crisis as the 1930s.

One British politician, however, has announced what needs to be done. The Chancellor George Osborne has called for eurozone fiscal co-ordination and supra-national economic governance for nations using the euro.

This is an historic moment. Osborne is seeking to reverse centuries of British policy which has always opposed the creation of a single, hegemonic continental block with one ideology, one religion, or one economic and trade policy. Now, in the biggest move by a Conservative since Robert Peel embraced free trade or Harold Macmillan promoted the welfare state, Mr Osborne has become a Euro-federalist as far as the continent is concerned.

He believes that as long as the pound exists, Britain can live with a fiscal union eurozone. But 75 per cent of the £12,000 trillion EU economy – the world’s biggest – uses the euro. Non-EU states like Switzerland and Norway have to abide by EU rules. If Mr Osborne’s advice is taken, a single continental eurozone with common budget rules will dictate to every other EU member state and set the rules for banking and financial transactions, including those of the City. President Sarkozy of France and Germany’s Chancellor Merkel met yesterday to begin preparing for a single continental economy.

Is that what Mr Osborne has in mind? If so, can he take Tory Eurosceptic MPs with him? And what does Labour have to say? For 15 months since the election, all party leaders have preferred to say, see and hear as little about Europe as possible. That period is over. Europe is about to re-enter British politics big-time and devour those politicians who do not have convincing answers to the question: what is to be done with the EU?

Denis Macshane is MP for Rotherham and was Europe Minister from 2002-05.