Mrs Merkel is a clever politician. In Berlin she speaks German, and in Brussels she talks European. She wants the Euro area to reform in a Germanic way, but she wants Germany to stay within the wayward zone and gradually to assume the responsibilities of leadership for the currency.
Her German electors were never keen on the Euro. I remember when senior Germans came to London to persuade me and others of the joys of the Euro which they categorically said the UK would join, they had to admit 70% of the German people wanted to keep the DM. How wise the people were. Their leaders’ predictions that the UK would lose its City business and find trade difficult outside the currency were less well judged.
Now Germany is in the Euro there is relentless pressure on her to put the German trade surplus and strong tax revenues at the disposal of states with weak finances, to assist Euro countries with trade imbalances, and to guarantee commercial banks with weak balance sheets. Just as the UK government, taxpayers and Central Bank stands behind the cities and parts of our country that are in trade and budget deficit, and behind all the main UK banks, so many think Germany should now stand behind the Greek state and Spanish banks, to name but two problem areas.
Mrs Merkel knows she cannot openly back major subsidies or guarantees from German taxpayers to the problems of the zone . She needs to play brinkmanship with the troubles, only in the end agreeing expensive compromises and even then trying to avoid any direct German payment. This is why Germany does not want to see the UK leave the EU.
Accepting that the UK has stayed out of the Euro – something the German establishment would not accept before and shortly after the formation of the Euro – the UK has a couple of important uses for Germany. The first is the UK can normally be relied on to be more fierce against expansion of EU budgets, subsidies and taxes than Germany, providing good cover for the German position. Second, the UK is a useful unpopular large member of the club making Germany look more mainstream and acceptable. I doubt Mrs Merkel is stupid enough to think they need to keep the UK in in order to be able to carry on exporting so much to us, and her Ministers have said sensibly that if the UK left the EU they would want a free trade agreement so they could sell to us and we to them.
Mrs Merkel now has another reason to be nice to the UK. The adverse reaction of many UK voters to the scale of European migration, and to the required favourable benefit treatment of migrants from within the EU, is mirrored by some of the reactions in Germany. Mrs Merkel is wise enough to heed the warning, and needs to take some action to show German opinion that there have to be some limits to generosity to recently arrived individuals, and some understanding of worries about the pace of change in once settled communities.
She and Mr Cameron may well be able to agree some reforms to the EU rules on these matters that are mutually beneficial. She also needs to understand on this visit, however, that the “British problem” is not going to be fixed by a few modest changes to benefit rules. The British problem is an advanced version of the German one. The UK stayed out of the Euro. We did so because UK taxpayers do not wish to stand behind the Greek state, or Cypriot banks or any other country’s trade deficit. Our worry is the whole Treaty architecture is now designed for the Euro area and not for us. That is why we need a new relationship.