January 15, 2014 10:34 pm

Osborne threatens EU secession without reform

Chancellor George Osborne Speech On EU Reform©Getty

George Osborne talks on EU reform on Wednesday

The UK Chancellor has warned European leaders that Britain could be forced to leave the EU unless its treaties are rewritten, claiming that current rules are “not fit for purpose” and are bad for Britain and the eurozone.

But there are growing signs that Berlin is going cold on the idea of a full-scale treaty revamp, reflecting fears across Europe that this would trigger awkward referendums and strengthen the eurosceptic cause.

George Osborne insisted that a new EU treaty was inevitable, because new rules were needed to put the euro on “firmer foundations” and to protect the interests of countries like Britain that are outside the single currency area.

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“If we can’t protect the collective interests of non-eurozone member states then they will have to choose between joining the euro – which the UK will not do – or leaving the EU,” he said.

David Cameron, the British prime minister, sees a new treaty as important for pursuing his renegotiation of Britain’s terms of EU membership, ahead of his proposed in-out referendum in 2017.

Mr Osborne told a London conference on EU reform: “The European treaties are not fit for purpose. They didn’t anticipate a European Union where some countries would pursue dramatically deeper integration than others.”

But most of the bloc’s 28 member states want to avoid treaty renegotiation, which they fear could lead to referendums; France, Ireland and the Netherlands are among those to lose such votes in recent years.

Germany has argued for changes to EU treaties in the past, but it has increasingly tried to keep revisions narrowly focused on eurozone reforms, to avoid succumbing to Mr Cameron’s demands.

France, where major treaty changes could trigger an awkward referendum, is hostile even to such narrow changes and some other member states fear a new treaty could become a platform for Eurosceptics in their own countries.

Mr Osborne lambasted the “make-do-and-mend” approach to reforming the eurozone’s rules, citing talks starting this week on a new intergovernmental treaty, outside the EU framework, to create the eurozone’s bank resolution fund.

Diplomats in Brussels say that route was taken explicitly to stop Britain hijacking the process and Carsten Nickel, a Berlin-based analyst of the consultancy Teneo Intelligence, said Germany now had little appetite for treaty change.

“A couple of years ago, at the onset of the crisis, the drive for large-scale reforms was a bit stronger,” he said. “With the pressure off, the idea is more to have surgical amendments, slight changes.”

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Mr Osborne told the Open Europe/Fresh Start conference: “Rather than face up to the truth, those in Brussels are being forced into legal gymnastics as they try to stretch the existing treaties to fit a situation they were not designed for.”

He added: “We are taking a great risk with the future economic security of Europe if we do so.”

Mr Osborne’s speech comes at a sensitive time for the Conservatives and Europe, with some 95 Tory MPs pushing Mr Cameron to adopt a much more aggressive approach to getting a better deal for Britain.

If there is no new treaty in preparation before Mr Cameron’s proposed 2017 referendum, he would be forced to undertake the difficult task of trying to reform the EU without changing its fundamental rules.

Mr Osborne said the EU’s declining competitiveness was another reason for immediate reform. He said the EU accounted for 7 per cent of the world’s population, 25 per cent of its economy and 50 per cent of global welfare spending.

“We can’t go on like that,” he said, calling for a variety of reforms, particularly the swift conclusion of a transatlantic trade deal.

Douglas Alexander, the shadow foreign secretary, said the Conservatives were practising “not just bad policy but also a bad party management strategy”.

“The Conservative leadership seems to be spending more time negotiating with their backbenchers than negotiating with Europe to deliver real reform,” he said in response to Mr Osborne’s speech.

“Instead of threatening exit, David Cameron and George Osborne should be focused on delivering reform in Europe. Reform in Europe not exit from Europe represents the right road for Britain.”

Katja Hall, policy director at the Confederation of British Industry, said Mr Osborne had set out a “compelling case for reform to ensure Europe stays competitive” but stressed that the “benefits to the UK of the EU single market far outweigh the costs and it remains fundamental to future growth and jobs”.

“We need an EU that is more open and outward looking and must protect UK influence as the eurozone integrates,” she said. “A growing EU is in the UK’s national interest so we must build alliances with other member states to get the reforms we need.”

Additional reporting by Jeevan Vasagar in Berlin

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