David Cameron is determined to forge a new European settlement to ensure Britons "feel comfortable" about membership of the EU, according to the Europe minister.
In a Guardian interview, David Lidington dismissed the warning by the European council president, Herman Van Rompuy, that plans by the prime minister to repatriate powers would lead to the unravelling of the EU.
"We need a settlement that enables the British people to feel comfortable with membership of the EU," Lidington said. "While we could survive outside, that would not be the best outcome for British interests, either economic or political."
Responding directly to Van Rompuy's warning that member states cannot "cherry-pick" policies, Lidington said: "I give a certain amount of short shrift to some of the charges of cherry-picking. I say: 'Hang on, why is it that we have a single market in services that is very far from complete? Why no single market in transport yet?'
"There are lots of ideas around, and the reality is that every member state has its own interests and tries to promote those within the context of European business. We need to continue to push very hard for the greater liberalisation that will rebuild prosperity and competitiveness, not just in Britain but throughout Europe, and keep Europe facing out to the rest of the world and not become introverted and protectionist."
Lidington praised Van Rompuy's handling of the European council but said his criticisms of Britain were to be expected from a former prime minister of Belgium. "As the head of an EU institution and as a distinguished former Belgian prime minister, President Van Rompuy is going to be more friendly to the traditional EU view than a UK view would be. He has been previously head of a small member state, and small member states have traditionally looked to a strong commission, a strong European parliament, a strong community method as their protection against the big member states."
Van Rompuy issued his warning as the prime minister prepares to outline plans in a speech in the new year to repatriate powers from the EU after the 2015 election. It is expected that Cameron will offer to hold a referendum on the new settlement, which he would demand as Britain's price for supporting changes in the governance of the eurozone, if he wins an outright majority at the next election.
Lidington said Britain would be in a strong position in the negotiations. "The prime minister is very well aware that what he puts forward at the next election, in terms of European policy, is going to have to be negotiated with others.
"But we shouldn't underestimate our negotiating hand, just as we shouldn't overestimate it. There is a risk of giving up before you start and the prime minister is very determined not to do that."
Cameron had shown at the two recent EU summits on the budget and on banking union – as have George Osborne on financial services regulations and Vince Cable in pressing for reform of the single market – that Britain can shape events in Europe. "What we can point to is a record of practical and successful negotiation, sometimes in the face of a very difficult background," he said.
Lidington said it was not just Britain calling for a new EU settlement. José Manuel Barroso, the president of the European commission, called for a reopening of the treaties in 2014 to move towards a federation of nation states. Nobody would be forced to go along with that, Lidington said. "In that speech [Barroso] looked forward to a major renegotiation at some stage in the medium term and to some kind of differentiated integration," Lidington said.
"Minds are not as closed as some domestic commentators suggest.
"Angela Merkel has been saying we need to look at this question of a [eurozone] political union and ask how we make democratically accountable moves towards greater fiscal and economic integration. A number of leaders in different European countries are turning their minds to what type of architecture is going to work for a Europe in which some countries in the single currency are likely to choose to move towards closer fiscal and economic integration. That raises profound questions of democratic accountability, as well as very serious questions of economics. That is the context in which we would be putting our ideas on the table. It would not just be the UK that was not in this group of countries moving towards close integration.
"So it is not just the UK that will have an interest in designing a system that is fair to all member states, but which also allows those who have opted for the single currency to move towards the greater integration they are seeking."
Lidington added that the need for democratic accountability was a serious issue across the EU. "A third of French voters in the first round favoured a presidential candidate – Marine Le Pen or Jean-Luc Mélenchon – who campaigned openly against the EU as it currently exists," he said. Citing the rise of the Jobbik party in Hungary, he added: "In too many European countries now there has been a show of support for parties that are not just populist – I don't put Ukip in this category – but are a throwback to a very unpleasant part of European history."
Lidington, one of the longest-serving Europe ministers who has visited every EU member state since his appointment in 2010, occupies a highly sensitive position in government. On one side he has to deal with the traditionally pro-European Liberal Democrats while on the other he has to remain on friendly terms with a large number of Tory MPs who want to withdraw from the EU.
One of Lidington's major tasks is to oversee a coalition exercise, covering the whole of Whitehall, to examine the impact of the EU in more than 20 different areas of government policy. A series of reports, written by civil servants and approved by ministers, will be published from the spring of next year until 2014 to examine the impact of everything from directives to the European Court of Justice.
Lidington said: "I hope we will end up at a place where the European debate in this country is probably about the best informed anywhere around the EU."
Mark Rutte and Fredrik Reinfeldt, the Dutch and Swedish prime ministers, are understood to be keen to contribute to the British examination of the future of the single market. Ever the diplomat, Lidington is careful not to name any other countries.
But Reinfeldt, who is David Cameron's closest EU ally, is interested. Clegg disclosed in a Guardian interview that Rutte, his closest EU ally, is also interested in what the deputy prime minister described a "kind of desktop exercise".
Eurosceptics, who hope Lidington is sitting in a darkened room in the foreign office to write a report that will make an overwhelming case for Britain to withdraw, will be disappointed. He characterises it as a coalition exercise that will provide fodder for every major party.
"This is not going to lead some enormous package of European reform. That is for political parties to decide upon when they prepare their manifestos for 2015."
The former Elizabethan history doctoral student speaks about Europe with an enthusiasm rarely heard on the Tory benches. He described the political developments in eastern Europe, from the fall of the Berlin Wall in 1989 (when he was working as an adviser to Douglas Hurd) to the enlargement of the EU to the east, as "probably the single best, most glorious thing that has happened in international relations in my lifetime".
Lidington said: "It was the reunification of a continent that had been divided since 1914. If you like it was the lights going on again that Edward Grey [foreign secretary 1905-1916] saw being extinguished.
"I am a pragmatic British Tory, and I don't get emotional about Europe. But actually seeing democratic institutions, rule of law, normal European ways of life in Poland, the Czech Republic and Bulgaria – this is really exciting and it is moving too. And that would not have been possible without the UK's engagement."
Lidington says his most moving moment as Europe minister came in 2010 when he attended the 20th anniversary of German unification in Bremen. This finished with a concert performance of the finale from Fidelio, Beethoven's only opera, which tells the story of a nobleman, Florestan, who is rescued from prison by his wife dressed as a prison guard, Fidelio.
"Somehow that just seemed so right," Lidington said of the concert. "That is what is best about this enterprise. There are times when I want to scream with frustration at the bureaucracy or about the wrong-headedness or the over-centralisation of this.
"But there are other times when you actually see why I believe the effort should be to reform and improve the settlement and not to walk away from something that can be of huge value and to which the UK can make a great contribution that serves our interests as well as a collective European interest."
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