October 2, 2011 5:31 pm

Eurozone integration drive worries wider EU

A drive toward deeper integration in the eurozone is provoking a backlash from those European Union member states outside the single currency club.

Their chief concern is that they will be excluded from eurozone discussions about policies – from taxation to financial regulation – that could have direct bearing on their own economies.

Such anxieties are bubbling to the surface as a campaign to overhaul the EU’s economic and fiscal management to better cope with the current crisis is shifting into a higher gear. After a final round of consultations, Herman Van Rompuy, the president of the European council, is expected to present a set of recommendations to member states next week.

The looming overhaul would put the seven central and eastern European member states, including Poland, Hungary and the Czech Republic which are committed to joining the euro but have not yet done so, in an awkward position.

One diplomat likened their plight to having committed to move into a house only to discover that others are renovating it.

“Those who are not in – the so-called ‘outs’ – we are very concerned. We have the right to discuss issues that affect us,” he said.

In a sign of their discontent, they held a secret meeting in Brussels last month to air their grievances and plot strategy.

But even countries that do not aspire to join the euro are concerned. In London, there is a growing panic that a more tightly-knit eurozone club – dominated by France and Germany – could use its weight to influence bank regulation and other legislation that would apply to all 27 member states.

One British diplomat spoke of the need to use “grappling hooks” to ensure that the eurozone countries do not race ahead with plans that might imperil the single market.

There is broad agreement that the EU’s member states must better co-ordinate their economic and fiscal policies – particularly the countries that share the single currency – in order to avoid the debt build-ups and imbalances that contributed to the current crisis.

But the new rules and institutional structures to achieve those aims could also tilt the balance of power among the club’s members and institutions, diplomats say.

France and Germany have stirred particular worry among smaller member states and the European commission, the EU’s executive arm, by pressing ahead with their own initiatives with little consultation.

In a move that still rankles many, the two cut a secret deal last October on new rules to punish budget offenders. More recently, they suggested biannual meetings of eurozone leaders as a way to promote “real economic government”.

The “outs”, as they are increasingly known in Brussels, say they acknowledge the need for eurozone leaders to discuss their problems in a tight circle. But they are aggrieved at being shut out altogether.

Earlier this year, Jacek Rostowski, Poland’s finance minister, sought to attend eurozone meetings as an observer during the country’s turn at the helm of the EU’s rotating presidency. He was rebuffed by Paris in an episode that featured in Warsaw as a national humiliation.

“If you’re out, you’re left in the cold. All of a sudden you’re being placed in the second category of states,” one eastern European diplomat complained.

Even before Mr Van Rompuy presents his recommendations, other countries are already pointing to a fracture in Europe.

Writing in the the Frankfurt Allgemeine Zeitung, Carl Bildt and Anders Borg, Sweden’s foreign and finance ministers, said they were “therefore worried that we are seeing the emergence of a new divide in Europe, a divide that would, in the long term, undermine the strength of the union”.

The ministers cited the benign theory of a “two-speed Europe” in which the core countries surge toward greater integration, carrying the periphery in their wake. But this, they argued, no longer held true.

“Rather, we would see the reverse when it comes to growth and competitiveness,” they wrote, arguing that many eurozone members might band together to promote protectionist policies that could weaken the single market.

Additional reporting by Alex Barker in Brussels

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