Cameron is on a hiding to nothing over Europe

Tomorrow – world events notwithstanding – David Cameron will give his long-awaited and much over-hyped speech on Europe. However hard he tries to dress it up as an attempt to map out a new course for Europe it is really about picking away through the battleground that is the modern Conservative Party.

It seems almost certain that Cameron will end up promising, at least implicitly, that he will hold a referendum on the United Kingdom's future membership of the European Union soon after the next General Election should he still be in office. This, he hopes, will be enough to buy time with his rebellious anti-Europe right wing and also stem the loss of votes to the UK Independence Party. Let's hope this is all he does.

What we don't want – and most of the City doesn't want – is the promise of a third way over Europe, one that leaves us semi-detached and with a decreasing say in how the European co-operation project will develop over the next 20 years or so, a sort of never-ending trench warfare between us and the rest of Europe. It would be debilitating economically.

I say third way deliberately because the two-tier Europe arrived with the advent of the Euro over a decade ago and the logical momentum that has developed towards greater monetary and fiscal union already ensures a sharp distinction between those countries that are in the Euro and those that are outside. If Cameron starts trying to map out a separate path for the UK among the countries outside the Euro it will be a lonely and isolated trek.

He may attempt to air some ideas along these lines in the speech but the bottom line will be that he will offer a simple in/out referendum: there won't be a 'maybe, if only' option. I believe such a referendum would result in a substantial vote to stay in the European Union just as it did in 1975.

There are alot of ifs and buts in this debate that make predictions very difficult, if not wildly speculative. I base mine on what happened nearly 40 years ago.

Labour Party divided
Then, we ended up with a referendum because the Labour leader, Harold Wilson – re-elected as Prime Minister in 1974 – was similarly struggling to hold a divided party together over Europe. His left wing, led by Peter Shore and Tony Benn, wanted out while the mainstream of the Labour Party were passionately pro-Europe. The Tories, under Edward Heath, had taken us into Europe three years earlier after the previous Labour government led by Wilson had been rebuffed, principally by the French and their nationalistic leader at the time General de Gaulle. The Liberals, then as now, were overwhelmingly pro-Europe.

Wilson sat out the referendum campaign, as would Prime Minister Cameron should he win the next election and trigger another vote. Labour divided with the left wing providing most of the forces in the "No" campaign, although the former Conservative Cabinet minister Enoch Powell (by then an Ulster Unionist MP) also took a prominent role. The "Yes" campaign was fronted by two party leaders – Edward Heath for the Conservatives and Jeremy Thorpe for the Liberals – and the Home Secretary Roy Jenkins, later leader of the Social Democratic Party. It was the co-operation among the parties that sowed the seeds for the creation of the SDP a few years later.

The "Yes" campaign was better funded (as I am sure would be the case again), had the positive arguments and was fronted by mainstream political figures who clearly felt comfortable sharing a platform. The unlikely bedfellows in the "No" campaign could barely bring themselves to speak to each other. That same scenario is likely to play out again.

We can see from the Coalition that centre-ground politicians are broadly comfortable in each other's company even if they wear different party labels. There are many in the Labour Party who would readily share a pro-Europe platform with Vince Cable and Ken Clarke. The same doesn't apply on the other side. The anti-Europe left of the Labour Party may be smaller now but it is no more likely to hold hands with Nigel Farage than Tony Benn and Enoch Powell were.

City will back a pro-Europe campaign
The City is worried about drifting further away from Europe. With the UK outside the Euro is already has a fight on its hands to maintain its influence as fiscal and monetary union gathers pace in the Eurozone. It will not want to jeopardise its role further and so will dig deep to fund another "Yes" campaign.

I am sure Cameron realises all of this: after all, he is better on strategy than he is on policy. His job tomorrow is to pretend otherwise.