Coalition in crisis as Lib Dems hit back

A deep rift at the heart of the Government opened up yesterday, with Deputy Prime Minister Nick Clegg publicly admitting his bitter disappointment over David Cameron's unprecedented use of the veto to block a new EU treaty to deal with the financial crisis. Mr Clegg said that Britain standing alone outside the EU would be a "pygmy in the world" whose views were "irrelevant".

His blunt warning – and rising concern expressed by other leading Lib Dem figures – 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 first 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 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. David Owen, who led the short-lived SDP, said the Prime Minister had "ruthlessly pushed Clegg into a blind alley" that could split the Coalition apart.

Asked yesterday whether the crisis could "break the Cabinet", the Liberal Democrat peer Lord Oakeshott of Seagrove Bay replied: "It's a very tense situation. It could do." Writing in yesterday's Observer, the former Liberal Democrat leader Lord Ashdown said: "We have tipped 38 years of British foreign policy down the drain in one night. We have handed the referendum agenda over to the Eurosceptics."

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 the 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 will either radically change the terms of Britain's membership of the EU or end it altogether.

He appears to have been particularly riled by the Tory MP Andrew Rosindell, who intervened at Prime Minister's Questions last week to urge Mr Cameron to show "bulldog spirit".

But he stopped short of criticising Mr Cameron personally – unlike Lord Ashdown, who described the use of the veto as a "catastrophically bad move" and claimed that any previous Prime Minister would have secured a deal in Brussels.

Mr Clegg said Mr Cameron had been trapped between French intransigence and anti-EU sentiment on his back benches. "We had countries who really weren't interested in trying to help out; and, on the other hand, we've had this steady drumbeat for years from the Conservative Party of outright antagonism to all things European," he told the BBC's Andrew Marr.

"They think it's a triumph, but in my view are spectacularly misguided. 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 also warned that "a Britain which leaves the EU will be considered to irrelevant by Washington and will be considered a pygmy in the world".

Mr Clegg's aides had previously briefed that he had been in touch throughout Mr Cameron's negotiations in Brussels. But yesterday he said that the first he knew about what had happened was when he was woken by a phone call in his Sheffield flat at 4am. He said he had immediately told Mr Cameron that the outcome was "bad for Britain".

Labour accused Mr Cameron of not wanting to secure a deal because he preferred to appease the anti-EU right. "The Eurosceptic wing of the Conservative Party has essentially taken over," the party leader Ed Miliband claimed.

Scotland's First Minister, Alex Salmond, accused the Prime Minister of "blundering into changing the UK's entire relationship with the EU".

Party tensions: Voices from the Liberal Democrats

Paddy Ashdown, former Liberal Democrat leader: "We have tipped 38 years of British foreign policy down the drain in a single night. We have handed the referendum agenda to the Euro-sceptics.

"[John] Major had the courage to stand up to his bastards. It pains me to say it, but Mr Cameron has acted as the leader of the Conservative party and not the Prime Minister of Britain."

Simon Hughes, Liberal Democrat deputy leader: "[Eurosceptics] should calm down. There will not be an opportunity for them to pull us further away from Europe. That's off the table."

Vince Cable, Liberal Democrat Business Secretary: "I am not criticising the Prime Minister personally. Our policy was a collective decision by the Coalition. We finished in a bad place."