The red line the City wants Nick Clegg to draw is on an EU referendum

Parliamentary Business: The Lib Dems' centre of gravity on the EU has shifted. The eurozone crisis sharpened opinions

Awaiting Nick Clegg’s speech at the National Liberal Club, Lord Ashdown pointed at the portrait of another living former leader, Lord Steel, who had posed in full dress uniform. “He looks like a cabin boy on the HMS Pinafore,” smiled Paddy.

The pointed features of the late Jeremy Thorpe were illuminated by a TV crew’s spotlight, his dark eyes glaring down on Mr Clegg’s “Opportunity for everyone” emblazoned lectern. Ominously, Mr Thorpe was the last Liberal leader to botch a coalition deal, with the Conservatives back in 1974.

Mr Clegg outlined two “red lines” for a Conservative or Labour-led coalition: protecting England’s education budget and holding a “stability Budget” within 50 days of polling day.

The latter might seem odd in the event of a second Con-Dem pact, given they’ve only just had a Budget, but apparently it’s necessary because the Tories have declared so many “unfunded spending commitments” since the campaign started.

Mr Clegg claimed this had “spooked” the markets and that the Lib Dems would be “the guarantors of stability – just as we were in 2010”. It was impressive rhetoric, and while there is little Clegg-mania this time around, the deputy PM has offered plenty of reminders of why he was once so loved and has arguably been the most statesmanlike of the big three.

But on to the impact on the City of a second coalition.

First, let’s ignore the likelihood that Lib Dem activists, so badly bruised in the polls by past power-sharing, will most likely vote down any deal at the special conference required to approve a coalition, particularly one with the Tories.

Let’s also accept that Mr Clegg stays on as Lib Dem leader, which requires him to hold on to his Sheffield Hallam seat and retain a good number of the 57 MPs from last time around – at least 35 in all probability.

We’ll concentrate on the possibility of a repeat of 2010, which requires us to believe that the Conservatives and Lib Dems can muster enough seats for a stable coalition (this is rather different to getting the 326 seats required for an outright majority – there are sufficient rabble-rousers in both parties to necessitate a number similar to the 363 they won between them last time).

Although there are plenty of critics of the past Coalition’s economic record, it’s difficult to argue that it is anything other than respected internationally and is generally well-regarded by the markets. The current low yields on 10-year gilts reflect how investors are pouring money into “safe” Britain at a time when swathes of the world economy still seem so damaged. Plus, both parties are committed to a strict timetable to balance the books, and the Lib Dems are keen to push investment in big infrastructure schemes once that job is done.

So far so good for the City. But here’s the rub: Mr Clegg’s red lines will not include blocking an in/out EU referendum.

This much was clear when the Deputy Prime Minister struggled to obfuscate a question from a Dutch journalist on just that issue. Mr Clegg said the Lib Dems’ position remained that the party thought a referendum should take place only when there was a significant transfer of powers to Europe; the Tories’ policy was a matter for them.

Back in the 1990s, when Lord Ashdown was leader it was inconceivable that the ultra-Europhile party would countenance a vote that risks Britain’s membership of a bloc that remains this country’s biggest trade partner.

But the Lib Dems’ centre of gravity on the EU has shifted in recent years. The eurozone crisis sharpened opinions, meaning that a long-term campaigner for EU reform, defence spokesman Sir Nick Harvey, is now seen to be in the party’s centre ground rather than a “Eurosceptic”, as he was incorrectly branded during the 1990s.

There are plenty within the Lib Dems’ frontbench team who believe that they should agree to the Tories’ pledge for an in/out referendum in the next Parliament, albeit pushed back a little later than 2017 so as to make a full case for retaining membership. They want the issue settled for another generation and are not so blindly pro-European as to panic about the risk of losing a vote.

Big business leaders might be largely pro-Conservative, but they also fear that this pledge will create the sort of uncertainty that stifles inward investment and threatens the ease of trade we currently enjoy with our neighbours.

As I have argued last week, the SNP could exert pressure on a Labour-led government to pass a legislative commitment that would make EU exit almost impossible, with all four UK nations having to vote “out” in any future plebiscite. Even without that “double majority” requirement, the uncertainty of a referendum would at least be delayed for five years.

With his most famous modern predecessors, both alive and dead, staring down on him, Mr Clegg failed to make the case that his party would be able or willing to do much the same.

The one red line that the City would love is also the one that our most EU-loving party refuses to draw.

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