ANY QUOTES USED MUST BE ATTRIBUTED TO MURNAGHAN, SKY NEWS

DERMOT MURNAGHAN:
Well the week began with Nick Clegg absent from the chamber as David Cameron returned to the Commons from Brussels and ended with an attack on the French government, it’s been a difficult week to say the least inside the coalition and of course, with our European allies. In a moment I’ll be speaking to the Deputy Prime Minister, Nick Clegg, also watching the discussion are our Twitter experts and they are today Vincent Moss, political editor at the Sunday Mirror, Joe Murphy from the Evening Standard and Mark Littlewood, who is the Director General of the Institute of Economic Affairs. They provide their reactions via Twitter, you can read those on the side panels and you can follow on our website, skynews.com/politics, we want you to join in as well using the hashtag #murnaghan. Well Nick Clegg joins me from his official country residence of Chevening, a very good morning to you Deputy Prime Minister. Can we start first of all with the issue of Europe and relations with our European partners? We’ve had the veto, we’ve had this economic war of words now it seems with France, do you think that relations can be rebuilt any time soon?

NICK CLEGG:
Of course they can, because they must be. There’s no possible salvation, if you like, for Europe as a whole and there is no route out of these very acute economic difficulties that the whole continent faces unless we act together. I’ve always believed that as a general rule we are stronger when we work together and we’re weaker when we fall apart. This is a very turbulent time, there is a lot of political pressure on governments, there is a lot of economic anxiety most importantly for millions of people who are concerned about their jobs and their wage packets and that’s why you are getting this pressure cooker environment in which some words are said which aren’t wise but I think everybody knows, everybody knows that we need to move forward and need to work together where we can because that’s the only way that we’re going to get out of this mess together.

DERMOT MURNAGHAN:
So is it your ambition to more or less get us back to where we were in Europe? We are partially going down that route with the observer status when the eurozone next meet.

NICK CLEGG:
Well I think it is worth just, if you like, separating a little bit of fact from perception. There is no question, there was never any question and there won’t be any question of the United Kingdom joining these tough new budgetary and fiscal rules which other countries both within the eurozone and those who hope to join the eurozone in the future are now negotiating to create. There is absolutely no question of that because we are not a member of the eurozone and I certainly see no prospects, certainly not in my political lifetime, of us ever joining the eurozone. The only issue was exactly how we as the United Kingdom give consent to the use of European Union institutions and rules and so on to make that new budgetary pact, if you like, those new disciplines, function effectively in the eurozone. Now why is it in our interests to allow that to happen? It’s in our interests to allow that to happen because three million people’s jobs in our country are dependent on our ability to export into our European back yard so if our European back yard is not doing well and if the eurozone is spluttering, then that costs jobs and loses people’s money in our country, and that’s why it remains, notwithstanding all the bumps and scrapes and ups and downs of the last week or so, it remains in our overwhelming national interest to see the eurozone come out of this better and stronger.

DERMOT MURNAGHAN:
Do you think though, I mean if we do get those relations rebuilt, that in the future Mr Cameron should be left there on his own? We knew the run up to those discussions that took place in Brussels the week before last time you’d signed up for the negotiating strategy but then of course you didn’t go, you were waiting at home in Sheffield, why didn’t you go along and would you have done things differently?

NICK CLEGG:
Look, I don't think there is much point particularly a week later to start playing what if, what if politics. There’s only one person per country in the negotiating room which is the Prime Minister, that’s as it always has been and as it always will be. You are quite right, we agreed as a government what the kind of list, the shopping list of asks would be that we the United Kingdom would bring to the table. In the event there was no really substantive negotiation on that list of asks at all and in effect negotiations broke down and left us, at least for the time being, we’ll see how things turn out, in an isolated position which clearly I couldn’t and I didn’t welcome but I think it is really important to stress that this is a very kind of moving scene. We don’t exactly know how these 26 countries will be able to come to a new arrangement and whether all of them will stick to that arrangement. We don’t know what’s going to happen to the markets, as we’ve seen over the last few days there is a lot of extra pressure being bought to bear on some eurozone countries, so it is a very fluid situation and in a fluid situation when your national interest is to help the eurozone sort itself out, then of course we need to be at the table as much as we can and that’s why I’m delighted for instance that it was decided in the last few days that before the end of January or the beginning of February there’ll be a meeting bringing together everybody in the European Union – of course prominently including the United Kingdom – to talk about the most important thing of all, which is how do we boost growth and competitiveness and jobs across the European continent.

DERMOT MURNAGHAN:
And in a fluid situation of course things can turn on a sixpence, things can happen very quickly. How highly do you rate the possibility that in some way, shape or form the eurozone will have to be reshaped, that one of its members at least may leave within the next twelve months or so?

NICK CLEGG:
Yes, I read and hear a lot of people sort of breezily predicting almost with a sense of glee that the eurozone is going to fall apart and this country is going to drop out of the euro. Look, I don't know, my crystal ball is no clearer than anybody else, all I do know is that no one should lightly wish for that outcome because there’s no such thing in my view as an orderly break up of a currency. It’s by definition a slightly chaotic uncontrolled process and that in itself creates more risks of economic uncertainty exactly at a time when economic uncertainty is stopping people spending in the shops, preventing companies from taking on new people in employment. We need to try and move from a phase of uncertainty towards a phase of greater stability and I don't think witnessing the break-up of the currency block on our European backyard would do us any good at all.

DERMOT MURNAGHAN:
But do you think there are those within the Conservative party, well we kind of know there are those within the Conservative party who do want to see that happen.

NICK CLEGG:
Well look, you’d need to ask them. I’m not a Conservative, self-evidently, and of course the Conservatives and the Liberal Democrats tend to come at this overall issue from slightly different angles but actually what unites all parts of the coalition government is an absolute and clear understanding that it is in our national interest to see the eurozone retrieve a sense of stability as soon as possible. But I have to say I personally don’t think that is going to happen just by fiddling around with a treaty here or implementing a new budgetary rule there, however important that may be to the eurozone. The real trick is to work out how countries like Spain, Greece, Portugal and the rest, those countries which are under pressure at the moment, can grow again and that I think is really, really in a sense the nub of it and in many ways the most complex thing of all because that can’t be settled at a nocturnal summit in Brussels, that has to be done by the governments themselves, firstly of course balancing their books – we saw the vote in the Italian parliament this week – and then doing the really controversial politically difficult things like liberalising how people are hired and fired, changing pension rules, opening up their economies, that is the kind of recipe, the menu of things you need to undertake as a national government in order to grow, notwithstanding the difficulties in the eurozone right now.

DERMOT MURNAGHAN:
I mean what we’re hearing Mr Clegg is a full blooded endorsement of how central Europe is to the United Kingdom, to its economy, to its well-being but I mentioned those on the Conservative back benches who want to see, some of them want to see us eventually leave the European Union. Let me read you this quotation, I’m sure you’ve heard it directly from him himself, from Lord Ashdown, from Paddy Ashdown, who talking about those Eurosceptics says ‘If this government were foolish enough to let those Eurosceptics run riot with euro policy in future, we’d be in a very dangerous position in government in Britain.’ Do you have fears like Paddy Ashdown that they have been emboldened by all this?

NICK CLEGG:
Look, all my political life I have argued for engagement, I have argued for us being an open society. I am actually giving a fairly philosophical speech about it tomorrow – what does it mean to be an open society at a time when many people are kind of closing up and turning inwards because they’re frightened about what’s going on in the world around them? We are at our best I think as a country when we engage, when we are open, when we lead, not when we kind of retreat to the sidelines and to those people who somehow think we can pull up the drawbridge and turn our back on the rest of the world and the rest of Europe, I would just literally make two simple factual observations. Firstly, the one I mentioned earlier, three million jobs in this country, three million people, their jobs are directly dependent on our status, our place in what is the world’s largest borderless single market, the European Union, a single market by the way that Britain helped create and that a Conservative government actually put into law many years ago. The second fact is still now, even with all the difficulties that we know about, we export as a country more to the Republic of Ireland than to Brazil. Russia, India and China combined. Now I just think it would be a triumph of optimism over fact to somehow wish away the fact that millions of people’s livelihoods are dependent on our engagement in Europe. To wish away the fact that we export more to a comparatively small economy on our doorstep compared to these great economic giants in Latin America, in Asia and elsewhere and that tells me that whether people like it or not, whatever they think about the European Union – and there are many things that I get immensely frustrated about with the European Union, for heaven’s sake this was a club that took fifteen years to define what chocolate was in a chocolate directive. Anything that takes fifteen years to define chocolate has clearly got some homework to do but nonetheless, I think those facts should show that our vital economic national interest is based on us being and remaining at the heart of Europe.

DERMOT MURNAGHAN:
What do you think then about, more directly, the relations with France? The French point out that we started it, the Chancellor said that elements of their economy were like Greece and Portugal and they say all we’ve done is point out that in certain elements the British economy is in a worse state than ours.

NICK CLEGG:
Well look, I think in a sense we could carry on day in, day out, playing this sort of game, this beauty contest between one economy and another. I don't think it helps, I don't think it helps any economy, I don't think it helps any government and that was something that was fully recognised by the French Prime Minister when I spoke to him a couple of days ago and he was very, very clear that he was not seeking to cast a shadow over Britain’s credit rating and certainly there is no intention on our part to do the reverse, so I just think we need to calm the rhetoric and move on. You know, Franco-German … sorry, Franco-British tit for tat language is something which crops up from time to time in our history and always has done, it has always been a kind of tug of war relationship, hasn’t it, but I think history shows that France and Britain always do best when we pull in the same direction, which is exactly what I hope we will do.

DERMOT MURNAGHAN:
What gives it so much power of course is the power of the credit rating agencies, isn’t it? This great fear, particularly for the French, that they may get their credit rating downgraded and therefore their cost of borrowing goes up. On those credit rating agencies, we’ve talked about the banks and other powers but the credit rating agencies, they’re unelected, they’re unaccountable and they are in a position it seems to wreck the world economy.

NICK CLEGG:
More than that, they got it spectacularly wrong about the banks themselves. The credit rating agencies hardly covered themselves in glory when they didn’t predict what was brewing before 2008. No institution is perfect, no credit rating agency is perfect but nonetheless I think they play an important role in keeping government’s feet to the fire and not allowing governments to – how can I put it, defy economic gravity. There are some basic rules of keeping your public finances roughly in good order, making sure that you introduce reforms in an economy so that you can grow and that’s the kind of thing that credit rating agencies at their best are good at pointing out.

DERMOT MURNAGHAN:
Okay, we’ll just pause it there for the time being, Deputy Prime Minister, Mr Clegg, thank you very much indeed but we will be back with you after the break because I want to discuss with Mr Clegg, as he touched on there, his ideas about an open society and where the Lib Dems go in the new year, in 2012.

DERMOT MURNAGHAN:
Welcome back to Murnaghan on Sky News where we’re talking live to the Deputy Prime Minister, Nick Clegg, who is still with me, hello again Mr Clegg. Talking before the break you touched on this speech you are going to make tomorrow about an open society and much reported in the papers this morning, one element of it, that you are against tax breaks for married couples. Why is that?

NICK CLEGG:
This shouldn’t have been news to anybody because it is something that myself and my party have always said and in fact in the coalition agreement we wrote in to the coalition agreement that the two parties couldn’t agree on this and that the Liberal Democrats wouldn’t vote in support of it. I’ll tell you why, and not because I’m against marriage, in fact getting married is probably the best thing that ever happened to me but just as a Liberal I just think there are limits to how much the state and government should try and micromanage or incentivise people’s own behaviour in their private lives. I just happen to have the view that most people get married because they love each other, not because they’ve looked at their tax return and seen that they are going to get some cash back from the state. It’s just a small example to be honest in a wider, slightly more philosophical speech about what does it mean to be a Liberal, trying to promote an open tolerant society and particularly what does it mean to try and promote social mobility, which is one of the most important things to Liberals and Liberal Democrats, the ability to get on in life if you work hard and try hard, irrespective of the circumstances of your birth, at a time of course when we know there is a lot of economic anxiety about, that was actually the central purpose of the speech I’m giving tomorrow.

DERMOT MURNAGHAN:
On that issue, I mean the state encourages people not to smoke, not to take drugs and things like that and the statistics on marriage are irrefutable in terms of the effect on families, particularly children. One in eleven married couples break up before a child is five, one in three in a partnership if they are unmarried.

NICK CLEGG:
My own view is that it is just undoubtedly the case, isn’t it, that children thrive best when they firstly see that their parents, whatever their status, are happy together, that clearly helps a child and secondly, of course, when they have got both mothers and fathers to help in their upbringing. It doesn’t help any child, does it, to be witness to a kind of warring parents, even if they are married, so I think we need to get away from the idea that there is something on a piece of paper that says if you are married that’s good, if you’re not married it’s not. I know couples who aren’t married but are very successful in bringing up very happy well- adjusted children. I guess the question is, and this is the context of my speech, and here there is a philosophical difference between a Liberal outlook and a Conservative outlook is that a Liberal will instinctively be cautious about using the state to try and get people to behave in a certain way in their own private lives and at the end of the day, deciding to get married should be in my view always regarded as something which is a private decision, it isn’t really the business in my view, philosophically from my point of view, it isn’t really the business of the government to say look, here, you are going to get twenty quid back, is that going to help you get married? I think it won’t make much difference to people’s decision anyway.

DERMOT MURNAGHAN:
Okay, but a philosophical difference, particularly with elements of the Conservative party, who you feel are trying to take us back to a golden age, whether it existed or not, round about the 1950s, where you had a working father, a stay at home mother, two rosy cheeked children and of course they all went to church on a Sunday, as the Prime Minister was saying the other day, we are a Christian society.

NICK CLEGG:
Well I think it is important always isn’t it to move with things that are changing in society and not somehow try and push back against trends which are much bigger than any single government or single political party. Families have been changing for a very long period of time. I lament anything which I think is damaging to children and that’s why for instance I have been spearheading in government moves to give two year old toddlers free childcare and pre-school support and to give all three and four year olds more pre-school support because I’m absolutely convinced that’s where the state can help to help children get the best out of their lives and their education, by helping them very, very early on. It’s why I pioneered the idea of a pupil premium in a school system, so I am very much for the state doing things which governments can, particularly to help children. I am just more sceptical as a Liberal, and this should come as absolutely no surprise to anybody, it’s hardly new news, I’ve said this for years but I think there is a limit to how much the state should seek to do in organising people’s private relationships.

DERMOT MURNAGHAN:
Okay, give us a head’s up, or give your supporters a head’s up for 2012, after the tough year of 2011 in terms of Lib Dem policies, particularly electoral reform, what’s happened recently in Europe, what are Lib Dem supporters going to see coming up in 2012 which will get a spring back in their step again? Will we see things like Lords Reform, I don't know, the 50p rate enshrined for good, things like that?

NICK CLEGG:
Well actually I think the things I regard as most important, I think many Liberal Democrats do, are the things we said we’d do on the very front page of our manifesto, the manifesto from which we fought the last general election and I would single out for instance lifting more and more people out of paying any income tax altogether. We are moving budget by budget, measure by measure, towards our target of ensuring that no one pays any income tax on the first £10,000 they earn, by next April we will have already taken over a million people on low pay out of paying any income tax and given a significant amount of money back to every single basic rate tax payer and we’re going to do more of that next year and the year after that and the year after that so that’s a big move, one of the biggest tax changes in the tax system for many, many years. The pupil premium, giving more money to schools, particularly those schools dealing with children from the most difficult backgrounds which then benefits all children from all backgrounds in the classroom because it leads to smaller class sizes, more one to one help and tuition, more catch up classes on Saturday morning and so on. That is something which has already started in the last year and which again is dramatically increasing inside next year. So those are just two areas which are very associated with the Liberal Democrats which we will be expanding upon next year.

DERMOT MURNAGHAN:
Okay and I’m glad you mentioned next year and the year after that and the year beyond that because I wanted to ask you about, and the one beyond that, because I wanted to take you up to 2015 and this issue of the autumn statement and the bad news we heard about the economy and the deficit reduction strategy and Danny Alexander, the Chief Secretary, tying the Liberal Democrats into a position beyond the General Election of 2015, the Liberal Democrats economic policy will be in lock step with the Conservatives. How do you fight an election on that basis?

NICK CLEGG:
I think it is quite important to realise what all the political parties are saying. In a sense all the political parties are saying something quite similar which is we are not going to clear the decks, we won’t have got the job done to clear what technically the economists call the structural deficit by the next parliament. Now interestingly, before the autumn statement, there was only one party, the Labour party, who felt it was going to take longer, was going to stretch into the next parliament. What we have done as a coalition government is be quite up front with people and say because things are not as good as we’d hoped, it is going to take a little longer, it is going to take a couple more years to wipe the slate clean but within that there is a huge amount of detail. I mean we are not going to write the future budgets and exactly where you find the savings in terms of public spending, exactly what the Liberal Democrats say about tax changes at the next general election – all of these things are things where the party is entirely free to make up its own mind and we’ll do so. I think we are just being up front with people about what the country can afford over the next few years.

DERMOT MURNAGHAN:
Mr Clegg, thank you very much indeed. The Deputy Prime Minister there, and a happy Christmas to you, Nick Clegg there.

NICK CLEGG:
And to you too.