The markets seem to be surprisingly untroubled by current negotiations over who will lead the next Government of the United Kingdom. They know that whoever is in charge will have to follow a programme of cuts and tax rises.

The Timetable

Whatever the different constituencies for the two sides may hope, the two main competitive options are only going to differ on nuance rather than fundamentals when it comes to economics. The same applies to foreign policy. The differences lie on political reform and the type of cuts and tax rises.

There are many potential permutations in the medium term - including another election or a minority Tory government pottering along until its first major vote of confidence - but the most likely outcomes are either a Lib-Con pact or the so-called 'progressive alliance'.

The system has around another three or four days to get itself sorted out. If there are not signs of significant progress by (say) Thursday, the markets will get jittery. No deal at all by the time the markets open next Monday could cause a more serious crisis.

What has not been commented upon a great deal is the effect on foreign policy of the final outcome. There is only a hair's breadth difference between Conservatives and New Labour so any 'nuance' must come from the emergence of the pro-European Liberal Democrats and the Scots and Welsh Nationalists.

Perceptions of Sovereignty

It is common knowledge that David Cameron has relatively little interest in foreign policy. His concern with domestic issues means that he has virtually handed over this area to the Churchillian 'post-imperial' elements like Hague who revel in statecraft as once did Tony Blair.

Both New Labour and the Tories are Atlanticist to the core. Both are persuaded towards UN reform in favour of rising powers. Both have a 'thing' about Iran and Africa. Both support the two-state solution in the Middle East. Both are committed to overseas aid as a moral principle.

The difference lies over Europe and a particular perception of sovereignty. Mandelson's vision of power is subtle and relies on influence through a trans-national elite leadership as if the country was an important subsidiary of a major conglomerate. The Tories believe in UK plc as a separate entity.

Tory euroscepticism is not now driven by the fear of English votes moving to the Right but is embedded in the rising generation of libertarians. Surely this in itself might push the Liberal Democrats into the arms of New Labour?

The Tories & Europe

The failure of UKIP, various English nationalists and the BNP to make a mark is only partly a matter of taste - the intelligent English and British nationalists have become sophisticated and retaken the Tory Party from its base. The image of Europe has also changed on the centre-right with Lisbon.

Once there was a vision, closer to Mandelson's, where national economic interests were intimately bound up with the creation of a massive single market. This enabled mainstream Toryism to embrace Maastricht but Lisbon has been an integration too far.

Appreciation of the single market model has been replaced by a greater fear that economic federalism will end up killing the goose that lays the United Kingdom's 'golden egg' (the City of London) and that integration demands will severely damage British, or rather English, culture.

This is why it remains possible for the Liberal Democrats, despite the risk of alienating much of the rest of the English population, to shift from the Tories to New Labour if they do not get a major concession that gives them a prospect of electoral reform before the next election. But will they?

Europe, The Liberal Democrats & Labour

Europe is central to the world view of the older generation of Liberal Democrats. Cameron's euroscepticism will cause them to bridle as Europe integrates under the guise of saving the Euro in a way that makes it increasingly difficult for a Tory Government to accommodate change.

New Labour is infinitely more pro-European than the Tories, seeing it not as competitor for influence within the West but integral to a West that is lead in part from London and wholly in partnership with Washington. It is just a variation on a shared Atlanticist theme but an important one.

New Labour's Manifesto was supportive of European social protection legislation (a core trades union demand), supportive of enlargement and supportive of the integration of EU anti-crime, anti-terror and defence operations with NATO. The concession of a referendum on the Euro was merely tactical.

But, other than Europe, foreign policy is less important to Liberal Democrats than to either of the other two parties who, paradoxically, given all their debates over sovereignty, are heavily beholden to the joint security arrangements with the US that make Trident such an expensive white elephant.

What the Liberal Democrats offer is a softer approach to issues of war and peace, assertive in defence of human rights and opposed to WMD but not necessarily adopting the 'hard' Western view that the exercise of forward military power is the means to guarantee rights and democracy.

Since many of the Labour Left and certainly the Scots and Welsh nationalists share these views, are more suspicious than nearly all Conservatives of Atlanticism and are more instinctively pro-European, the idea that the Liberal Democrats can 'tame' New Labour in an alliance has its attractions.

The State Carries On Regardless

The State (the Crown), after fifty years of Atlanticism, is relaxed. It is confident that 'plus ca change'. The nuances may be different but the core of the next Government will still be embedded in a vision of the West, the UK at its heart, a post-imperial vision of global influence under the wing of America.

The Liberal Democrats are scarcely revolutionaries, merely replacing America with Europe as the focus of attention within a values-driven conception of a 'progressive alliance' and softening the means to attain the same values-driven ends in either model.

The questions this week are whether these differing nuances in foreign policy are going to be at all central to the decision whether to take one path rather than another in the formation of the next Government and what each 'model' may mean in practice.

Our view is that they will play a role in the negotiations but they are far from central. The big economic decisions (including Trident and the Eurofighter) are going to be driven by market factors and it is probable that Tories and New Labour would combine to save the central core of Atlanticist policies.

The Liberal Democrats know that they cannot do anything about the Tory position on Europe and the best that can be done is to fight the big battles through referenda rather than on the floor of the House.

Similarly, the Liberal Democrats can make a lot of noise about right-wing posturing on sovereignty on matters of detail and principle and might combine with the 'progressives' to block a particularly obnoxious bit of nationalism (as they would see it) but this need not cause a Government to fall.

Outcomes

At the end of the day, the prize for the Liberal Democrats has little to do with Britain's place in the world and a great deal to do with political reform.

If you add in the chance to influence the Tories towards their own avowed 'compassionate' conservatism and a shared agenda on the restoration of civil liberties, there is a lot to be said for a Liberal-Conservative alliance until the next election.

On the surface, the Liberal Democrats may have much more in common with the 'progressive coalition' in foreign affairs than they do with the Tories but we need to dig under the surface of what is going on here.

The two nationalist parties have opportunistically sought to out-flank New Labour to the Left. Their package of measures has included the attack on Trident and on post-imperial interventions overseas but this radicalism is really only skin-deep.

The nationalist parties are simply against the 'Empire' and they want to continue its break-up whereas the Liberal Democrats have only ever wanted to liberalise and humanise it. Indeed, liberal enthusiasm would often extend Empire where pragmatic Tories might justifiably only see the costs.

So what influence would the Liberal Democrats actually have on New Labour's policies in office (in foreign policy)? We would suspect - despite the best wishes of what remains of the Labour Left and the progressive grassroots - very little indeed.

Foreign policy is central to New Labour's positioning and many Liberal Democrats are happier with its general thrust in terms of forward promotion of Western values than they like to admit. The 'real' Left had a more revolutionary take, wanting to liberate the world by liberating the British working classes.

New Labour Right assumptions are not so very different from Liberal Democrat instincts. Both New Labour and Liberal Democrats like big things the country can belong to! They both want them to have some basis in universal values rather than mere statecraft.

The Labour Left, on the other hand, is on its knees. Its progressive elements are very little different from Liberal Democrats and its radical elements are crushed with no hold on either Party or State. The collapse of RESPECT in East London matched the crushing failures of the Radical Right.

The addition of Liberal Democrats and Nationalists to New Labour would be an occasional irritant rather than the cause of major change. If the Liberal Democrats joined the 'progressives, it would be for political reform, electoral advantage and civil liberties - not for a sea-change in the British State.

In other words, here, as with the Tories, foreign policy is a second order consideration in any negotiations. The Liberal Democrats in office with New Labour are unlikely to be at the heart of external State policy unless given greater prominence in Europe.

The current negotiations, like the election itself, are primarily about domestic reform and domestic crisis - how to rebuild confidence in the system to weather major cuts and tax rises. They are not about foreign policy. In that area, expect business as usual constrained by lack of cash.

Foreign Office mandarins are getting increasingly concerned at the Conservatives' approach to Europe. The Tories may not be as extreme as UKIP but they are definitely eurosceptic.

The FCO has been staffed at its highest level, increasingly so since the 1970s, by mandarins who have been committed in varying measures to atlanticism and europeanism but definitely not to nationalism.

The FCO has not ‘got it’

William Hague appears to be suggesting that the Tory model of the world is less one of a Washington-London-Brussels axis and more one of London operating equally in its relationship to Washington, Brussels, the Commonwealth, Beijing and Moscow.

This is code for a national interest position, much as one might expect from the author of a well regarded biography of William Pitt the Younger.

Both major parties are atlanticist but New Labour became more european as part of its internal ‘reform’ process in the late 1980s and 1990s. New Labour is perfectly amenable from an FCO perspective except perhaps insofar as it went a little bit overboard in its atlanticism under Blair.

Arabists were soured and angered by what they saw as poodledom but this does not mean that they understood that the UK cannot afford to play a role east of Suez and south of the Sahara, only that they thought that the British had their own interests in the region distinct from the US imperium.

The FCO still assumes that being ‘big’ in the world is a good thing in itself – we suppose that this comes with the job description. 'Gloire' still plays its glamorous and magical role on the powerful.

Yet, while the UK does not have the secure economic basis to play with the ‘big boys’ in a multi-polar world in the long term, this does not mean that it has to roll itself under other sovereign interests, whether these be the US or the incipient European State, in order to be noticed.

The problem for diplomats is that the UK has no real and immediate enemies except those that it makes for itself. If there is no enemy, no threat to defend against, foreign policy tends to over-emphasise prestige alongside more material interests.

The UK's worst current scenario is that some atrocity monger might be let into the country through the same excessively porous borders that are required by its commitment to globalisation, a commitment  central to FCO thinking. Building an entire foreign policy on a bunch of criminals is scarcely impressive.

Of course, our ‘natural enemy’ alternates between anything trying to grab hegemony in Europe (in which case we have alliances with Russia) - or Russia in competition for control of spheres of influence outside Europe.

If you are wandering around the world trying to develop a new post-imperial status based on trade, soft power, values and other forms of influence (a model in which the British Council and BBC World Service are useful work horses) then trade and Russia come to be the only justifications for expenditure.

Russia (although increasingly replaced for some absurd reason by Iran) has almost become institutionalised as a threat, as if our policy-makers need something like Moscow to centre themselves upon and keep Europe off the list.

This misses the point. Russia is only a problem if you think that resisting the imposition of our values overseas makes another country into an enemy. A bigger threat may well lie in the European Union, a project much nearer to home that threatens some core values at home.

The Commitment to Europe

If your model is one of strengthening the British nation state within its own natural sphere of action (effectively Atlantic and the European Continent), then Russia is irrelevant so long as it is not tempted to return to its East European stamping grounds.

Russia, historically, has merely filled a vacuum when these occur (after Napoleon and after Hitler). The threat otherwise for the UK is more obviously a strong Europe that might impose its values and economic authority on the UK’s populous offshore islands.

From this perspective, the rational strategy is the one that appears to have dominated British thinking since Edward Heath bounced the country into the European project:

• maintain the counterweight of the Atlantic Alliance
• seek to extend the Atlantic Alliance into Europe as a restraint on excessive Europeanism
• keep the European Union as primarily a values and economics project
• extend it to the East to keep the Russian bear from seeking to fill that vacuum.

The establishment could rally around this (even the Arabists) because:

• it encompassed the so-called ‘special relationship’ (eventually degraded into poodledom)
• it allowed old warriors who remembered the Crimea and the Great Game (Stalin being a mere interlude) to maintain their sniffy attitude towards Moscow
• it gave ‘Albion perfide’ a chance to manage Europe into becoming an over-extended free trade zone based on liberal democracy – a continent of grocers as Napoleon might have termed it.

This system reached its apogee with Tony Blair who internalised and implemented this grand strategic vision of ‘partnership’ with the old white empire, but this time to 'do good' in the world, to exert influence over the little brown brothers and create a new 'Europe of the West' in a multi-polar world.

The UK would thus be primus inter pares because of its influence with the US - whether the Germans and French liked it or not. The US card thus became the trump in a massive game of diplomatic poker. This is, as we will see, Britain's 'grande illusion'.

This system has crumbled in the space of two years as if some tipping point has created an extended Suez. Of course, the central event is the economic crisis which has not only weakened the UK but has raised major questions about the liberal economic model.

What Has Changed

The European instinct is anti-Keynesian, disciplined, corporatist, conservative and regulatory – everything that the UK and the City of London fears as a global trading centre. Europe was being seduced into the Anglo-American economic model just as it folded.

At this moment, the Government is not fighting for British interests so much as arbitrating between British interests and the European regulatory drive. But other factors have opened up the contradictions and problems within the British grand project.

The election of Obama has created a new vision of American foreign policy that is not particularly interested in the aspirations of the British and sees it even more openly as a disposable tool that is only interesting as a means of influence within Europe.

The utter failure of the UK to get European engagement in Afghanistan and the fact that Iran is using the UK as its whipping boy in making its claims of subversion in order to maintain a dialogue with the US, indicates just how shallow is the special relationship claimed by Blair in practice.

Meanwhile, the European Project cannot just stand still. The Lisbon Treaty creates a new model of the European Union that will lead ineluctably, if it does not implode from within, to a United States of Europe in all but name.

Once the Lisbon Treaty has passed, the machinery is in place for a process of federalisation analogous to that which crushed any resistance to authority in the US and which still continues in the war on organised crime. More powers will be directed to the centre to solve pressing problems as they arise.

The economic crisis under conditions of non-implementation of the Lisbon Treaty has meant that there has been no effective co-ordinated response but it has also increased the sense within the core of the EU that there have to be co-ordinated responses in future.

Such responses will not be liberal but corporatist – or, rather, they will represent a conservative capitalism intended to ensure social cohesion. The message should be clear – the post-Lisbon world, which New Labour has so enthusiastically embraced, could transform British culture.

All this may not have mattered if New Labour had held on to the confidence of the British people. New Labour can adjust to these new conditions, but only by shifting to a more European Socialist model in which it embraces corporatism.

Such a strategy might have been achieved through its coalition of interests – the outlying less prosperous regions, organised labour and the public sector. Lord Mandelson may yet effect this trick. There is a strange public trust in him – as one might in Machiavelli – a trust in his competence.

The Fact of the English

But New Labour is on just 25% of the vote. Many of its senior members are running like rats from a sinking ship.

Much of the public that will not vote for it actually hates it for many reasons – its perceived murderous foreign policy, its failure to deliver social change, the perception of incompetence, the perception of deception, the perception of incompetent deception and of deceptive incompetence.

The English (still the majority group within the UK), regardless of the opinions of the Celts and the migrant minorities, where they have not adopted the dying collectivist culture of the labour movement or are not nicely embedded in the comfort of the public sector, are nationalist, libertarian and stubborn.

They moan and they withdraw rather than fight, or only fight under conditions that would have had Americans reach for their guns and Europeans out on to the streets, but many of them do vote – and herein lies the problem for the Establishment.

The Establishment treats democracy as a useful fiction – a means of gaining legitimacy for the circulation of elites who compete for office while the infrastructure of the State continues regardless. Elected Government makes a difference to the direction of policy but within a framework dictated by history.

The whole point of politicians (in the eyes of the Establishment) is not to exert the people’s will on them, but to mediate between the people and the State so that the State can get on with the job at hand.

Neither the political class not the Establishment have been much worried in the last three decades by the loss of a link between actual votes and legitimacy. In the 1960s, the two main parties’ seats would equate approximately to their vote because they were a duopoly.

Since then, first, the return of the Liberal Democrats and the rise of Celtic nationalisms and, now, the emergence of neo-nationalism have thrown everything up in the air. The public is angry and the main political parties need to re-establish both connection and legitimacy.

In June, in the wake of scandal affecting this intermediary political class and in the midst of economic crisis, nationalist votes drifted from New Labour into the BNP and libertarian and nationalist votes drifted more heavily from the Conservatives to UKIP.

The Conservatives are assumed to be the next Government but this is not a fully correct assumption. The patterns of voting within the First Past The Post system could come up with results that are nothing like the popular vote. The Tories cannot afford to be complacent.

The Problem of the Tories

For New Labour, this is largely a matter of re-connecting with their core social base. This helps to explain their sudden rather late interest in care for the elderly and in social mobility.

Re-connection has to be established at the Party Conference and then reformulated as an appeal to solidarity - to limit the damage and, at best, retain office and, at worst, ensure that New Labour is re-established as the UK’s second party and not wiped out altogether.

For the Conservatives, the matter is more complicated. They have a strategy that has served them well over many centuries. 

Ever since Sir Robert Peel, the Tories have understood that they way to dish the Whigs, the best term for the succession of challenges to the propertied that have emerged over three hundred years, is to appeal to the mob and to detach sections of the other side and embrace them.

For Cameron, as an Old Etonian ‘toff’ surrounded by similar social types – a Leader more in the model of Balfour and Douglas-Home than of Heath or Major – the art is to embrace the best of the public sector and re-build the party in the regions

But he also recognises that he cannot afford to lose traditional voters on Europe or on economic liberty to UKIP. This brings us back to Establishment nervousness. The Establishment wants full engagement in Europe in order to manage it. To eurosceptics (or 'euro-realists'), this is not a strategy, it is a sell-out.

Moreover, there are signs that many Europeans who are equally euro-realist are looking to the UK for leadership. The old guard cannot understand why Cameron – a social liberal at home by Tory standards – has allied himself with the ‘worst sort’ of neo-nationalist in Strasbourg.

Big business is also unnerved, as Sir Ken Clarke’s intervention this week suggests, not only by the fear that the Tories might seek to increase corporate taxation to limit the economic crisis’ effects on the public but that it might compromise on liberal economic values in Europe.

This latter is unlikely but there is a split between the interests of very big business, seeking to manage policy through one centre of power in Brussels, and the City and mid-sized and smaller businesses’ interest in keeping regulation to a bare minimum.

“I Say, Old Chap”

The Tories are only doing their job, intermediaries between the State and the People, as a political party. Like all politicians, they speak with forked tongue. They are not withdrawalist on Europe and they will accept the Lisbon Treaty if they can get away with it.

However, for the sake of rebuilding the Tory coalition, they are quite prepared to put Lisbon to a referendum that might be lost and they will be an often obstructive and obstreperous member of the community on matters of ‘interest’ because that is what the English want.

An honest Tory speaking to a Permanent Secretary in his Club would say,

“Listen, old boy, you leave us to do your job and we’ll do ours. New Labour has completely disconnected the English heartland from the State and we are going to have enough of a problem worrying about keeping the Celts and inner cities on board without worrying about a disconnected enemy within.

“These are our people and they feel aggrieved. We can no longer give them a nice little imperial war to distract them, so we need to speak to their national pride and dislike of regulation and state interference for a while, possibly a long while. Live with it.

"The Europeans are going to have to live with it too. It’s your job to get what you can out of the Europeans for our people. It’s my job to keep the people off your backs while you do it.”

The Establishment will, of course, not give up without a fight. Cameron is working with his own members against much of his Party elite.

Clarke has already spoken out. The European Parliamentarians certainly don’t like it. Rifkind has suggested merging our nuclear deterrent with that of the French to create a European strike capability in all but name.

What they are all doing now is merely trying to tone down the rhetoric just in case it is used as a bargaining tool against British interests in current negotiations on security and economic matters.

Poodledom and Power

There is one foot note to this. An unnamed senior diplomat reported in the Financial Times has, with consummate arrogance, revealed the Establishment’s trump card and reminded us that the role of ‘poodle’ is a conscious expression of State policy and not just an accident of politicians.

His expressed view is that the Tories will come into line on Europe because the US will command them to be fully engaged. We think this senior diplomat is naïve as well as arrogant.

The Atlantic alliance is as critical to the Tories as it was when Churchill constructed it as a first line of defence in the 1940s, but the re-evaluation around Cameron’s and Hague’s circle of the degree to which the UK must be commanded in security matters has been under-estimated.

Our prediction is that the ‘national pride’ element within the Tory Party will assert its Atlantic commitment but on terms closer to those of Harold Wilson rather than Tony Blair.

America will get most of what it wants but what it will no longer get, if the Tories come to power, is that blind loyalty that leads to imbroglios like Iraq and Afghanistan or the loss of sovereignty in supra-national institutions that works against core national interests.

The tension between the Tories and the Establishment over foreign policy is essentially one of what we mean by ‘national interest’.

To the Establishment it still means the Crown, the British word for State – an organism of continuity with a dynastic origin but run by a board of management of bureaucrats that weighs up national needs in terms of Thucydides’ primary concerns of all diplomats: fear of the other, prestige and material interest.

To the Tories, the balance between State and People has been lost under New Labour, As a political party, the Tories are far more interested in building a solid coalition that must appeal to British-English values, pride and livelihoods. They are right. These are the 'real' national interest.

It is one of the sadnesses of the British centre-left that it failed to be mediator between State and People for the first time in its history and that it chose a lawyer like Blair to lead New Labour as nothing more than an arm of the State. Its recovery, consequently, may now take a generation.

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