Britain turns on 'disreputable' Germany as relations sour over eurozone crisis

Whitehall says Germany should be more flexible in eurozone crisis after single currency boosted its economy in first decade

Angela Merkel and David Cameron pictured at an EU in October last year in happier times. Photograph: Francois Lenoir/Reuters

Downing Street inadvertently provided a reminder last week of the depth of Britain's ties with Germany.

In a briefing on the merits of David Cameron's plans to end male primogeniture in the royal line of succession, No 10 pointed out that Queen Victoria's daughter would have succeeded her if the rules had been in place in 1901. Downing Street overlooked the fact that this would have meant that Kaiser Wilhelm II would have been our King during theFirst World War. Britain's monarch would now be Princess Marie Cécile of Prussia.

These historic ties, which partly explain why the British establishment was so slow to wake up to the Nazi threat in the 1930s, endure to this day and help to explain why the Anglo-German relationship is one of the most constructive within the EU. The Franco-German alliance is obviously the most important in the EU – the "spinal column" of the eurozone, inNicolas Sarkozy's words.

But Germany tends to find Britain a steady and reliable partner within the EU. Berlin, which hopes this will endure, has always believed British euroscepticism is self defeating. It believes that France would love to use Britain's semi-detached status to make the single market less open and more protectionist.

With this history in mind, it is striking how relations between Britain and Germany have soured in recent weeks. In Whitehall senior figures are joking that Greece is turning into a "German protectorate".

The words of one senior Whitehall figure sum up the British view:

People are slowly waking up to Germany's disreputable behaviour in this whole saga. Their growth over the last decade was in large part down to countries like Greece buying German goods after racking up public and private debt because they had German levels of interest rates after joining the euro. And now Germany is dictating in very harsh terms what they should be doing. This shows how lucky we are that we are not in the euro.

This helps explain why the prime minister is pushing the Germans so hard to accept that the European Central Bank should act as the lender of last resort to countries within the eurozone. This would place a huge burden on Germany which is Europe's largest and most successful economy. But British officials have a clear message. Germany should be prepared to pay something back after prospering in the first decade of the euro by exporting shiny new Mercedes cars to countries like Greece.

But Germany is, as I blogged recently, reluctant to take this step because it believes that a sacrosanct principle of the Bundesbank – passed to the ECB – should be respected. This is its independence. Mario Draghi, the new president of the ECB, is insisting that he will not buy debts of the so called eurozone "peripherals". But the jokes doing the rounds is that Draghi, an Italian, is attempting to show his rectitude by acting as a German.

Britain, which thinks that Merkel may be slightly more flexible than others in Berlin and in Frankfurt, believes that the ECB will eventually have to come in and guarantee the eurozone bailout fund. This may be the only bullet left in the gun at five to midnight, goes the thinking.

Germany is equally irritated with Britain, though for different reasons. Merkel has not taken kindly to what Berlin regards as the lecturing tone of British ministers in recent months. But Germany's real irritation is with the prime minister's suggestion to Conservative eurosceptic MPs that Britain may seek to repatriate social and employment laws during future EU treaty negotiations. Germany is pressing for a narrow treaty change to place any moves towards greater fiscal co-ordination between the eurozone's 17 members on a legal basis. Britain would have a veto in these negotiations.

David Rennie, who writes the Bagehot column in the Economist, has one of the most important scoops of the eurozone crisis this week. Rennie, who has just returned from Berlin, reports that German officials are so angry with Downing Street that they are threatening to draw up a treaty just among the 17 members of the eurozone. This is what Rennie wrote:

Germany's priority is rules establishing unprecedented oversight of euro-zone economies. If Britain asks too high a price for its consent, Germany will reluctantly agree to a new treaty outside the EU system. This, it is expected, would involve more than 17 countries but fewer than 27. Britain would lose its veto.

This would be seen by some as a dramatic step by Germany. It would be a deliberate attempt to bypass Britain.

Germany is particularly angry because Berlin has made clear to Downing Street and the Treasury in recent weeks that it is looking for a very narrow treaty change focused solely on underpinning the euro. This would need to be done quickly to reassure the markets which means that no other issue would be placed on the table.

Wolfgang Schäuble, the German finance minister, thought this message had been understood when he visited George Osborne in London last month. This is what I blogged on 19 October:

Schäuble, who held talks with George Osborne, had an important message for Britain: forget any attempts to use the eurozone crisis to repatriate EU social and employment laws.

German officials were left with the impression that No 10 and the Treasury accepted that treaty negotiations to underpin the eurozone would not be the time to repatriate powers to Britain. That would be for a larger EU treaty negotiation in the years ahead.

These German officials were therefore slightly alarmed by the prime minister's statement to MPs on 24 October after the first of the two recent European Councils. In remarks designed to persuade Conservative eurosceptics not to vote in favour of holding a referendum on Britain's EU membership, the prime minister said:

Fundamental questions are being asked about the future of the eurozone and, therefore, the shape of the EU itself. Opportunities to advance our national interest are clearly becoming apparent. We should focus on how to make the most of this, rather than pursuing a parliamentary process for a multiple-choice referendum. As yesterday's Council conclusions made clear, changes to the EU treaties need the agreement of all 27 member states. Every country can wield a veto until its needs are met. I share the yearning for fundamental reform and am determined to deliver it.

German officials believe these remarks contradicted what British officials had said in private: that Britain accepts that any eurozone treaty change over the next year will be short and sharp and will not lead to wider negotiations.

Britain appears to be heading through a bit of a rough patch with the Germans. There is a belief in Whitehall that Germany is failing to face up to its wider European responsibilities and refusing to put back into the European economy some of the benefits it has enjoyed from the eurozone.

Germany, which sometimes struggles to appreciate the acute domestic pressure any British prime minister faces on Europe, believes that Cameron is making public statements which go way beyond his position in private.

Does this mean that, possibly for the first time, Germany has found common ground with eurosceptic Conservatives? Eurosceptics told me last month that the prime minister should not "tease" his party with suggestions on the EU he cannot deliver.