Clegg changes tune on EU veto with warning of growing isolation

A deep rift at the heart of the Government opened last night, with Nick Clegg publicly admitting his bitterness over David Cameron's unprecedented use of the veto to block a new EU treaty to deal with the financial crisis.

The Deputy Prime Minister said Britain standing alone outside the EU would be a "pygmy in the world" whose views were "irrelevant". His blunt warning raises questions about how Mr Cameron can hold the Coalition together when he appears before the Commons today to explain his actions.

Mr Clegg's initial public reaction to the Prime Minister's use of the veto was to stress that the Cabinet was "united". But all pretence of unity dissolved yesterday when he admitted he was "bitterly disappointed" by an outcome that he said could damage job prospects and impoverish families "up and down the country". He warned that even the City of London, whose interests Mr Cameron was fighting to defend, could be worse off because of the UK's isolation.

His change of mood reflects the horror felt by Liberal Democrats that a party proud of its pro-European traditions has become part of a government embroiled in the most serious conflict with the rest for EU for decades.

Asked yesterday whether the crisis could "break the Cabinet", the Liberal Democrat peer Michael Oakeshott replied: "It's a very tense situation. It could do [although] I hope not."

The Business Secretary, Vince Cable, denied yesterday that he was on the point of walking out of the Cabinet. "I'm in there fighting and making my case," he said. He added that the UK was now "in a bad place" in its relations with the rest of the EU.

Simon Hughes, the Liberal Democrat deputy leader, told anti-EU Tories to "calm down".

He added: "There will not be an opportunity for them to pull us further away from Europe. That's off the table."

Mr Clegg's aides indicated that he had decided to "go public" on the rift in the Coalition after hearing what he regarded as the triumphal reaction of Eurosceptic Tory MPs, who saw Mr Cameron's use of the veto as the start of a process which would either radically change the terms of Britain's membership of the EU or end it altogether.

"They think it's a triumph, but in my view they are spectacularly misguided," he told the BBC's Andrew Marr. "I hear this talk about the 'bulldog spirit'. There's nothing bulldog about Britain hovering somewhere in the mid-Atlantic, not standing tall in Europe, not being taken seriously in Washington."

Mr Clegg said that when informed of the veto he immediately told Mr Cameron it was "bad for Britain" and that "it was untenable for me to welcome it".