ANY QUOTES USED MUST BE ATTRIBUTED TO MURNAGHAN, SKY NEWS

DERMOT MURNAGHAN:
Now the former Lib Dem leader, Lord Ashdown, has you have heard, has told Sky News that the decision to veto the new EU Treaty was a catastrophically bad move. It comes as the Deputy Prime Minister, Nick Clegg, said he was bitterly disappointed with the outcome of the European summit, despite publicly backing the move earlier on. William Hague on this programme denied that Britain had been marginalised. In a moment I’ll be speaking to the Shadow Foreign Secretary, Douglas Alexander but first, the Defence Secretary, Philip Hammond, joins me, a very good morning to you Mr Hammond.

PHILIP HAMMOND:
Good morning.

DERMOT MURNAGHAN:
Let me just ask you through the job you do, trying to forge closer defence ties with our European friends, does it make your job harder? I mean bridges have been burned here.

PHILIP HAMMOND:
I think we have a co-operation in a number of areas and defence co-operation is one of the areas in Europe where the UK leads. We, with the French, have by far the largest defence budgets in Europe, we lead the pack and others look to us for that lead. In developing a single market, in looking outward at the challenges of the globalising economy, in making sure Europe is competitive in the world, these are areas in which many of the EU member states recognise that the British lead, the British approach to free trading and open market is the way to go forward.

DERMOT MURNAGHAN:
Does President Sarkozy see it that way? I mean he doesn’t like the Anglo-Saxon model as he puts it, he’s fuming.

PHILIP HAMMOND:
I have carefully not said every country in Europe looks to Britain to lead, I mean clearly President Sarkozy has a different view of how to secure Europe’s economic future but we are very clear that free trade and open markets and rigorous focus on making the EU more competitive, is the only way to dig Europe out of the mess that it’s got itself into.

DERMOT MURNAGHAN:
But let’s mention the French because we co-operated with them, Britain co-operated with them very successfully in Libya. I mean will the rancour, and there is rancour there, does that extend to areas like that now?

PHILIP HAMMOND:
Well my experience is that the relationships with the French on defence are extremely good and I expect them to remain extremely good. We have, both have, very strong reasons of self-interest to want to collaborate in defence, to make ourselves stronger within the budgets we have available. We have for example French officers embedded in the British Army structure, in our Royal Navy warships, I met a French office on board HMS Liverpool who played an important role in Liverpool’s work in the Gulf of Seat during the Libya campaign. The ties are very strong and the mutual self-interest in promoting those ties is very strong and I would expect …

DERMOT MURNAGHAN:
So you can see that relationship going on.

PHILIP HAMMOND:
Absolutely.

DERMOT MURNAGHAN:
Okay, what about in the coalition with the Liberal Democrats? Having sat on their hands and buttoned their lips partially for a couple of days, now they’re letting rip. They’re saying, we’ve heard Paddy Ashdown say it, we’ve heard Nick Clegg say it perhaps not as strongly, that Mr Cameron in Brussels was acting in the party interest and not the national interest.

PHILIP HAMMOND:
Well I don't think that’s right at all but you have heard some pretty strong views voiced on both sides. Some Lib Dems have expressed strong views, some of my own colleagues on the right of the Conservative party have expressed strong views. The reality is that David Cameron did not go to Europe with the intention of wrecking what the Europeans are trying to do, he went with a very modest and reasonable set of proposals, to make sure that the UK and particularly our single largest industry – financial services – was not disadvantaged by the proposed new Treaty. The others decided not to negotiate, not to give any effective consideration to the proposals that he came with and the end result disappointingly is that we have not got agreement

DERMOT MURNAGHAN:
I know that Douglas Alexander is going to say that in a moment or two but couldn’t have seen it coming, that the damage was done, he was ambushed, whatever you want to call it, at the summit but he could have built relationships before he got there, if he had had some of those conversations and made friends with people, if you can do, with people like President Sarkozy then perhaps he wouldn’t have had such a difficult outcome.

PHILIP HAMMOND:
Well you entered the caveat. There are tensions that have built up, there are differences of approach and there is no point trying to conceal that. The French have a different view of how we should manage the financial sector, financial markets, the French perhaps have a slightly different view about how we make Europe competitive for the future because I want to come back to that point. All of the talk about how we deal with the debt crisis in Europe, how we deal with the deficits across Europe, will not ultimately deliver a solution unless we also deal with the uncompetitiveness of some of the European economies and Europe’s increasing uncompetitiveness in the global economy. Those are the big issues that we have got to face together and I passionately believe that the British approach to this, free markets, open economies, open borders, lots of trade, is the right way.

DERMOT MURNAGHAN:
Okay, can I just ask you, and particularly a lot of Liberal Democrats make this specific point there, because it all seems to have hinged around these safeguards for the City of London and in particular a transaction tax. Why when we are talking, we are hearing from your government, from Conservatives in your government saying we are actively rebalancing the economy away from financial services, why all of a sudden have we gone for such a momentous move over the issue of financial services?

PHILIP HAMMOND:
Because whether we like it or not, financial services is a very large part of the UK economy and will remain a very large part generating lots of economic value, lots of jobs and lots of tax revenue. And there was a danger that the proposed changes within the eurozone, if we didn’t constrain them in any way, could have some very serious negative effects for Europe’s financial markets and particularly for London, which is the overwhelmingly dominant centre of financial markets in Europe. But this isn’t about us trying to achieve some looser deal or laxer deal for London, indeed one of the specific points that we were seeking to protect was our ability to impose tougher capital requirements on British banks than perhaps the European Union was looking at for its banks, many of which are less well capitalised than our own.

DERMOT MURNAGHAN:
Okay, thank you very much for the time being for that, Mr Hammond. Do stay with us because we’re got Douglas Alexander here and I’m sure he’s going to comment on some of the things you say so it will be only fair for you to have a response to that. Douglas Alexander, I may have taken the words out of your mouth there but your position is we wouldn’t have started from here in terms of what happened with Mr Cameron.

DOUGLAS ALEXANDER:
Well what we’ve seen emerge this morning from Paddy Ashdown on this programme, from Nick Clegg elsewhere, is confirmation of what we’ve been saying for the last 48 hours, that the Prime Minister was motivated by party interests, not by national interest, that there are actually no additional safeguards for financial services or the Single European Act, achieved by David Cameron walking out of the room and that it is just a bad deal for Britain. And these are not the words of one or two individuals, these are the words of the Deputy Prime Minister of the country who has been forced to accept that actually this was a seriously bad outcome and in relation to the point that Philip’s just made, if you take the financial transaction tax, it wasn’t under discussion on Thursday because that requires unanimity so Britain would have always been able to block a financial transaction tax. I would actually challenge Philip, when he comes back, to explain to me a single legal safeguard that was secured as a result of David Cameron’s action. What he has done is walked out of the room and we are now in a position where the City is more vulnerable, not less.
 

DERMOT MURNAGHAN:
But you talk about the Liberal Democrats, and we are led to believe, and the Liberal Democrats stay with this, that they made plenty of discussions before the summit, they agreed the negotiating strategy then Mr Cameron in that room made the assessment that really he couldn’t sign up to this. What would Labour have done, would you have walked away or would you have signed, it’s a stark choice?

DOUGLAS ALEXANDER:
Yes, and there are three differences between Labour’s approach and the Conservatives approach. Firstly, there would have been a different approach, we wouldn’t have been burning relationships, we would have been building relationships beforehand and, as Paddy Ashdown confirmed, that was a big part of the problem …

DERMOT MURNAGHAN:
But you wouldn’t have been building those relationships, because as you say, he shouldn’t have walked out of it but Labour wouldn’t have been in there, would they?

DOUGLAS ALEXANDER:
The very stuff of diplomacy is that actually you are able to work with people who you don’t agree upon everything with and in fact it is significant that notwithstanding the fact that you have got centre right governments right across Europe, we find ourselves in a position where there wasn’t a single ally for Britain. Where were the Dutch, where were the Swedes, where were the Danes, where were the Poles? These are countries that in any normal European negotiation, you would expect to be supporting a British government in the claims that it was making but we find ourselves literally isolated and that’s why it’s a bad deal for Britain, because you can’t defend Britain’s interests in an empty room.

DERMOT MURNAGHAN:
I am just trying to get clarity here, it is a very simple question, do you support what the Prime Minister did or don’t you?

DOUGLAS ALEXANDER:
He ended up in the worst place possible which is being unable to protect Britain’s interests. What could you have done to protect Britain’s interests? Of course build better relationships, but secondly have different asks. Why didn’t he ask for a seat at the table when the eurozone issues are being discussed? All of us know that they will have a profound impact on the British economy in years ahead, why didn’t he ask for what is called an Emergency Break Procedure, whereby if there were issues in relation to financial services that were a real concern, it could be graduated to a decision taken on unanimity rather than qualified majority voting. There was a deal to be done but I’m afraid the reality is David Cameron went to Brussels not wanting a deal and as Michael Heseltine confirmed yesterday, the reason he didn’t want a deal is because he didn’t have the Conservative votes in the House of Commons …

DERMOT MURNAGHAN:
Just to get that clarity from you …

DOUGLAS ALEXANDER:
The originals of this problem and what happened on Thursday night is a reflection not of David Cameron’s strength but of his weakness, the fact that he chose to follow his party not to lead his party.

DERMOT MURNAGHAN:
But it is the wriggling that Labour did, the public sector strike – I remember talking to people like you all the way up to that Wednesday November 30th saying do you support it or don’t you? They said they’ve got to keep talking. Well the strike too place, we still don’t know whether you supported it or not, but do you or don’t you accept, give the position the Prime Minister was in, that ambush, that sandbagging he got from Nicholas Sarkozy ...

DOUGLAS ALEXANDER:
He alone is responsible for that position, Philip Hammond today was trying to blame the French and others but the reality is that the person who bears the responsibility for Britain standing without a single ally in the European Union rests squarely on the shoulders of David Cameron.

DERMOT MURNAGHAN:
Okay, so where does Labour policy go from here? How would you rebuild those bridges, how do you get back in to that room? Do you have to eat some humble pie, what do you have to do?

DOUGLAS ALEXANDER:
I think there are some immediate choices for the Liberal Democrats because in government you are judged not by your private thoughts 48 hours after an event but by your public actions and in that sense I think the responsibility on Nick Clegg now is to answer more clearly, will he allow a situation to stand that Britain is outside of the room, with British interests, British jobs, British companies more vulnerable and not more secure as a result of David Cameron walking away.

DERMOT MURNAGHAN:
His stance was enormously popular, we’ve seen the polling today, the country likes it.

DOUGLAS ALEXANDER:
Yes, and there is no doubt he believed that he was acting in his party’s interests. The tragedy is that David Cameron wasn’t acting in the national interest.

DERMOT MURNAGHAN:
As I say, the polls are there saying people wanted him to walk away.

DOUGLAS ALEXANDER:
Don’t take my work for it, look at the views this morning of the British Bankers Association, look at the views of some of the major companies in the country, look at the views of the Deputy Prime Minister. Nick Clegg isn’t some detached observer of this government, he is the supposedly Deputy Prime Minister of the country, able to influence events. Even he has confirmed what we’ve been arguing for 48 hours, financial services and the single market are not protected, they are less protected after what happened. David Cameron’s key motivation was actually his concern as to his position within the Conservative party, not his relationships with the rest of Europe and frankly Britain deserved better.

DERMOT MURNAGHAN:
I’ll bring Mr Hammond back in a moment or two but are you saying to the Lib Dems, if you stay in the coalition after this then you are going to destroy your party?

DOUGLAS ALEXANDER:
Listen, what did the Liberal Democrats offer at the last election? They said that they would oppose tuition fees, they said they would be pro-European and they said that they would secure electoral reform. You have to ask the question after what we’ve heard from Nick Clegg this morning, how do the Liberal Democrats look themselves in the mirror given that the final horse has been shot from under them, the claim that they are somehow a pro-European party? They are in a government that has delivered a more isolated Britain than we’ve seen for, as Paddy Ashdown said, 37 years.

DERMOT MURNAGHAN:
We have no Lib Dem here to answer that but plenty of Conservative voice in the form of Philip Hammond …

PHILIP HAMMOND:
And let me answer that point for them. Nick Clegg made it this morning, I heard him making it, the coalition was formed because the country faced a crisis built by the previous government, a crisis of debt and deficit. We haven’t resolved that problem yet and for as long as that problem confronts us the coalition will endure because both partners in the coalition understand that whatever else we might disagree about, we agree that it is in Britain’s vital national interest that we solve that problem and Douglas talks about building bridges with Europe and he wouldn’t start from here, we know about Labour’s track record on Europe. Tony Blair told us that our rebate was non-negotiable and then he went to Brussels and he gave it away in exchange for nothing. We have nothing to learn from Labour about how to conduct ourselves in Europe.

DERMOT MURNAGHAN:
If Tony Blair had had his way early on we’d have been in the euro.

DOUGLAS ALEXANDER:
Listen Philip, you avoided answering the question, name the single legal safeguard that has been secured not just for financial services but the Single European Act as a consequence of David Cameron walking out the room? A single one?

PHILIP HAMMOND:
If we had entered into a new treaty without safeguards we would have placed the financial markets, the City of London but not just London, the financial services industry across the UK, at greater risk.

DOUGLAS ALEXANDER:
How? Explain how?

PHILIP HAMMOND:
As it is now, there is going to be, clearly going to be a series of further discussions and negotiations, the 26 cannot use the EU institutions without our agreement and …

DERMOT MURNAGHAN:
They think they can.

DOUGLAS ALEXANDER:
And you could have used Qualified Majority Voting.

PHILIP HAMMOND:
There will be further discussions about how to take the situation forward and we will be, David Cameron has set down a very clear marker that he is prepared to defend …

DOUGLAS ALEXANDER:
On his own, in a room with nobody else in it.

DERMOT MURNAGHAN:
Just explain that vote about Qualified Majority Voting, do you think there could be a greater threat to the City or other institutions, that they can all get together and leave Britain out?

DOUGLAS ALEXANDER:
British governments, Conservative and Labour, over all the years since ’96 and the establishment of the Single European Act, have managed to avoid us losing a vote by Qualified Majority Voting on financial services. How have we achieved that? By having alliances to ensure that at no point could the rest of Europe effectively gang up on Britain. The regime for financial services is exactly the same this week as last week, what’s changed is that we lack a single ally sitting alongside us and the 26 other countries of the European Union are going to be sitting down every month without …

DERMOT MURNAGHAN:
So even the prime mover behind this may fail?

PHILIP HAMMOND:
This is a complete construction, that because the 26 found themselves in agreement on this issue against us, the 26 will agree on everything, because the 26 were prepared to accept the French lead on this issue, they’ll be prepared to accept it on everything. Of course they won’t, the countries that have been alongside Britain in resisting some of the financial markets, changes in …

DOUGLAS ALEXANDER:
Where were they on Thursday night, Philip? Where were they? Where were the Dutch, where were the Poles?

PHILIP HAMMOND:
That wasn’t the issue that they were focused on on Thursday night but that doesn’t mean that the 26 will … Labour’s construction today is that because they voted the same way on Thursday they will always vote the same way on everything and there many different strands ….

DOUGLAS ALEXANDER:
You can’t defend the national interest in an empty room, Philip.

PHILIP HAMMOND:
… of activity going on within the European Union and one of them is around the eurozone.

DOUGLAS ALEXANDER:
Name me one single legal protection? There are none.

DERMOT MURNAGHAN:
Well you might have to keep waiting because you are not going to get it here it seems. Douglas Alexander, thank you very much indeed, and Philip Hammond, Defence Secretary, Shadow Foreign Secretary.