Angela merkel

Away from the amateur dramatics in parliament this afternoon, the government is fighting yet another battle with the European Commission over banking reform. European leaders will vote later today on proposals to introduce the rubric of Basel III across European financial institutions. Led by EU Finance Commissioner Michel Barnier and ECB Vice-President Jean-Claude Trichet, these proposals would insist that minimal and maximum capital requirements are imposed on banks. The terms dictate that banks hold 7 per cent of their top-class assets in reserve. Britain opposes the scheme, not because the requirements are too steep: the UK’s Banking Commission has suggested that banks hold 10 per cent of their assets in reserve.

"State multiculturalism has failed." Angela Merkel put voice to that sentiment last October. Now it David Cameron's turn to do the same. In a speech in Munich today, the Prime Minister has taken a rhetorical torch to Islamic extremism. "Frankly," he says, "we need a lot less of the passive tolerance of recent years and much more active, muscular liberalism." It is, at the very least, a significant political moment. What Cameron is doing here – as explained by Charles Moore and Paul Goodman – is publicly signing up to a philosophy of the world. It is a philosophy that rejects the idea that extremism should simply be contained. Instead, it says that extremism must be fought – and that means engaging in a battle of ideas.

As David Cameron stays in Brussels for his third European summit as PM, it’s becoming increasingly clear that the EU's approach to the eurozone crisis – put up short-term cash and pray – isn’t convincing anyone.   On Wednesday, Moody’s threatened to downgrade Spanish government bonds another notch, citing the fact that, between them, the country’s government and banks have to raise €290bn next year to keep the party going. And, across the eurozone, banks and governments face daunting refinancing targets in 2011, which begs the questions: at what cost? And what happens if they fail to meet them?

In all likelihood, George Osborne will rise this afternoon to groans if not jeers. Britain looks set to lend Ireland £7bn as part of multilateral and bilateral bailouts. Many, particularly the Eurosceptic right, question our involvement, given our straitened financial circumstances and the apparent fact that Britain is sustaining the eurozone’s monetary and debt union, and will have to borrow to do so.     George Osborne has been adamant throughout: Ireland is too important to Britain’s recovery to risk collapse – British and Irish banks are closely linked, debts and borrowing are often co-dependent, trade is very profitable. That the bailout should strengthen the euro is a natural consequence of Ireland being a member of the euro.

David Cameron is now in Seoul for the first G-20 summit hosted by a non–G-7 member state. It will be the Prime Minister’s second G-20. But things have changed dramatically since he came to power and had to jet to Toronto for his multilateral baptism. Then the Prime Minister’s arguments for austerity measures were theoretical - and a minority position. Now, they are real and have become the majority view. “Camerkelism”, the idea that short-term fiscal consolidation will induce sufficient private-sector activity to more than fully offset the fiscal drag seems to be in the ascendant. Yet the forced smiles at the traditional G-20 class photo will belie a number of continuing problems. The biggest issue will be about the Chinese exchange rate.

David Cameron’s statement on the European summit just now was an opportunity for pro-European politicians to tweak the Conservative party’s tail about the coalition’s stance on Europe. Ed Miliband told the PM that on Europe ‘we’re here to help him’ and ‘we’re prepared to ignore his previous convictions if he is too.’ Charles Kennedy welcomed the PM as a new pro-European. While Denis MacShane, the very communitaire former Europe Minister, said that there was nothing in Cameron’s statement he disagreed with. There was some grumbling from the Tory benches. Sir Peter Tapsell asked why if Merkel can get a Treaty amended can’t Cameron do the same and allow the country the referendum it was promised.

The British media woke up this week, realising that Europe still exists. As David Cameron travels to Brussels, questions loom over what, exactly, he can achieve in Europe – at this summit, and more importantly, moving forward.   Much of the commentary surrounding the summit has focussed on the increase to the EU’s 2011 budget, which Cameron is fighting.  And for good reason. It’s insane that Britain – or any other net contributing state – should be forced to accept any increase to the EU budget, at a time of tough austerity at home.   Cameron has spent considerable time talking up the negotiations on the budget increase, so he may have an ace up his sleeve to achieve a cash freeze tomorrow or in the coming weeks. But a 2.

David Cameron’s first battle with the EU opens on Thursday. Angela Merkel and Nicolas Sarkozy hope to introduce a treaty that will deliver tough sanctions on eurozone members that break budget guidelines. Their success rests on David Cameron’s support. Europe is built on quid pro quos, so Cameron will ensure that the new treaty does not prejudice Britain whilst also seeking to repatriate competences. He will avoid the more avant garde suggestions of outspoken eurosceptics – he knows that a UK Sovereignty Bill and exemption from pan-European customs arrangements are unfeasible unless Britain rescinds its membership - and, in the delicate context of coalition, seek practical assurances instead.