John Rentoul: Hague is doing impressions of Churchill. What happened to the Tories' new look?

The Lib Dem position on the deal is, er, we don't know

That, then, is the new positive politics from "Cameron's Conservatives", as they have cleverly rebranded themselves. Only hours after David Cameron appealed to Liberal Democrat voters, councillors and MPs to join a liberal Conservative party "which wants Britain to be a positive participant in the EU", what was his party's response to the budget deal? It was William Hague, voice of pro-European reason, doing his Churchill impression: "Seldom in the course of European negotiation has so much been surrendered for so little."

If Cameron and Hague had been negotiating the budget deal, as "positive participants in the EU", they would, of course, have come up with a very different outcome. The implication of what Hague said, wittily mixing his imperial and metric units - "The government have moved miles while the French have barely moved a centimetre" - is that he would have held out for better terms. There would, therefore, have been no deal. Britain would have insisted that every cent of the rebate was sacrosanct, and that the 10 poor new member countries must help pay for it. Britain would be back to its splendid isolation in the councils of Europe - breeding resentment in central Europe, provoking stoic German puzzlement in Berlin and giving the French the perfect excuse to use the unreasonable rebate as cover for defending indefensible farm subsidies.

Just the incentive that wobbling Liberal Democrats need to "come over". You can see how the thought processes might work. That Tony Blair has been a terrible disappointment. He came in sounding all warm and fuzzy about Britain adopting the euro, and about putting us back at the heart of Europe. But he lost his nerve on the euro, and by going to war in Iraq destroyed any chance of Britain taking a leading role in reshaping the European Union. What is more, Charles Kennedy is a bit too laid- back for my liking, failing to make the positive European case. I will jump ship, thinks the disgruntled Lib Dem MP of Cameron's fevered imagination, and join William Hague in his drive for greater European integration.

The only person playing his part in Cameron's Christmas pantomime, albeit rather half-heartedly, is Nick Clegg, the Liberal Democrat spokesman on Europe and great youthful hope for the post-Kennedy leadership. "Jacques Chirac has succeeded in his fanatical protection of the Common Agricultural Policy," he said yesterday. "Whilst Tony Blair has succeeded in retaining the British rebate, it comes at the cost of a significant reduction in its rates of increase."

That's clear then. The Liberal Democrat position on the deal agreed in Brussels in the early hours of yesterday morning is ... er, we don't know. Perhaps there are Liberal Democrat councillors who prefer Hague's deep-dyed Euroscepticism to Clegg's sceptical-flavoured fudge but, on the European issue at least, we cannot expect many recruits to rally to Cameron's standard.

On the contrary, I would have thought more Liberal Democrats would have been taken by the Prime Minister quoting Marx - not something he does very often - on the Today programme yesterday. Evidently frustrated by the rococo complexity of the EU budget, he said there was a growing consensus for a complete overhaul on the principle of "those that pay into it do so on the basis of their wealth and those that take out of it do so on the basis of their need".

Sadly, such a rational and clear-eyed approach to European budget-making falls victim to the first law of politics - that any change produces winners and losers, and losers make more of a fuss than winners. In European politics, losers have the added advantage of holding a veto. So do not expect rapid progress to rationality. Indeed, as so often, it is the distance between the clarity of Blair's vision and the messiness of the reality that his enemies use to portray as a measure of failure. Instead, we ought to focus on what has been achieved and measure it against the cost of doing nothing.

There were only two choices for Britain in these negotiations. We could have the deal that Blair put together or we could fall out with the central Europeans and Angela Merkel - whose loosening of the Franco-German alliance is one of the most hopeful signs for the future. What we could not have was immediate reform of the Common Agricultural Policy.

On that test, the British presidency of the EU for the second half of this year has been a modest success. The unwanted French folly of the Constitution has been given a decent and quiet burial. Talks about Turkey joining have begun. A budget has been agreed that preserves the whole of Britain's rebate from the original 15 member states and opens the way for further reform of farm subsidies earlier than Chirac wanted.

Over the whole of Blair's eight years to date, his record on Europe has been one of incremental progress, and of grand ambitions rightly frustrated. The three ghosts at the feast in Brussels were the ghosts of British centre-left Europeanism: Hugo Young, Robin Cook and Roy Jenkins. They all wanted Blair to make a heroic dash for the euro - and he led them on in private. But ultimately he was right to resist their insistent urging. He always had a more realistic understanding of the damage that fighting and losing a referendum on the issue would have done to the cause.

Gordon Brown closed that chapter last week, when he used the Hugo Young Memorial Lecture to deliver a thoughtful big-picture critique of the whole European venture. Admitting that when Young was alive they did not talk much about Europe, the Chancellor went on to dismiss the views of the grand old man of the The Guardian as those of the past 50 years. "While in 1945 the greatest challenge was to build peace in Europe, in 2005 the greatest challenge is globalisation, and how to achieve social justice on a global scale."

Enlargement, with the joining of 10 new countries in 2004, has transformed the nature of the Union. Britain's exclusion from the euro turned out, in the medium term, to be to our advantage. Britain has not been excluded from the decision-making centre, which was always the fear driving Blair's positioning. The failure of the Giscard d'Estaing Constitution - defeated by a referendum in the very country that spawned it - opened the way for a messier, improvised way of running things that is well suited to Blair's ceaseless pragmatism. David Cameron and William Hague have yet to describe a "positive" alternative.