Protection for London's banks at heart of UK's EU reform plans, says Osborne

http://www.theguardian.com/politics/2014/jan/15/banks-eu-reform-plans-george-osborne

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Cast-iron legal protections for the City of London will lie at the heart of David Cameron's EU reform plans, George Osborne has said, as he issued a strong warning that the UK would leave the bloc unless wide-ranging changes were agreed.

In one of his most significant speeches on Europe, the chancellor said the Lisbon treaty would have to be changed to prevent a "caucus" of eurozone members imposing financial services legislation on Britain.

To drive home his message to Britain's EU partners, Osborne warned that a failure to change the rules would prompt Britain to leave on the grounds that it would face a choice between exit or euro membership.

He told a conference organised by the Open Europe thinktank: "I believe it is in no one's interests for Britain to come to face a choice between joining the euro or leaving the EU. We don't want join the euro."

Osborne said that from 2016 the euro group would have enough votes under the Lisbon treaty to pass financial services legislation that would apply across the whole EU, including the 10 member states outside the single currency.

Warning that the euro group had already started to discuss EU directives in private, the chancellor said: "If we cannot 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.

"Europe urgently needs economic reform. Eurozone integration is necessary for the euro to survive, but proper legal protection for the rights of non-euro members is absolutely necessary to preserve the single market and make it possible for Britain to remain in the EU."

The Treasury is expected to examine a proposal by Andrea Leadsom, a member of the prime minister's policy board, who told the Guardian in 2012 that Britain should be given an effective veto over financial services legislation.

Leadsom, who introduced Osborne at the Open Europe conference, said Britain should be able to formalise the "Luxembourg compromise", which allows a member state to call a halt to votes held under the qualified majority voting system if a vital national interest is at stake. Leadsom believes Britain could argue this would apply in this case on the grounds that 60% of the EU's financial services industry is based in the UK.

Osborne went further in his speech and said EU member states committed to a liberal economic approach should be free to press ahead with greater co-operation just as those with a different approach were seeking to introduce a financial transaction tax.

He said: "If enhanced co-operation can be used by others to create expensive, job-destroying ideas like a financial transaction tax, why don't we think about using it for job-creating measures that others oppose?"

Osborne depicted his approach as a middle course as he sought to draw a likeness between hardline Eurosceptics who want to leave the EU and pro-Europeans who supported British membership of the euro in the late 1990s.

The chancellor said: "The one thing that unites those who urged Britain to join the euro and those who advocate leaving the EU is their shared conviction that any change is impossible and that there is no other way. There is another way. It is time to change the EU and to change Britain's relationship with it and then to place the decision in the hands of the British people."

The Tory leadership is trying to regain the initiative on Europe after 95 MPs signed a letter calling for parliament to be given a veto over all EU laws. Ministers have said the proposal outlined by the backbencher Bernard Jenkin is unrealistic because it would dismantle one of Margaret Thatcher's main European legacies – denying member states a national veto in deciding the rules of the single market to prevent the likes of France from imposing protectionist measures.

While Osborne believes the rules of the single market need to be updated to protect the interests of non-eurozone member states, the government is dismissive of the Jenkin letter on the grounds that it is in effect designed to take Britain out of the EU. Osborne made clear he had no time for what Downing Street regards as defeatist approaches on both extremes of the argument.

He said: "Strong feeling must never be allowed to cloud clear judgment about where this country's real long-term economic interests lie. It is clear what the British people want. They refuse to accept that we just have to take the EU as it is, that one size must fit all, that change is impossible, that reform is doomed. Nor do they accept that the only course open to us is to pack up and leave, to abandon the single market and the common rules from which we benefit and to walk away.

"There is a simple choice for Europe: reform or decline. Our determination is clear: to deliver the reform, and then let the people decide."

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