UK could lose its power over its own budget under plans for an economic eu government

[TriWooOx]

Quote:Britain could be forced to have its Budget signed off by European leaders under audacious plans to impose a new 'economic Government of the EU', it emerged today.

German Chancellor Angela Merkel is pressing for the controversial new arrangements, which were agreed by EU leaders, to include new powers of 'oversight' over national economies.

Her plans include powers to imposed financial penalties on states which have persistently high budget deficits.

In Britain's case these could include forfeiting the £2 billion a year 'structural funds' paid out to deprived areas by Brussels.

British sources today insisted any new powers would apply only to the 16 countries in the euro. But Brussels sources said the possibility of apply new sanctions to all EU member states remained open.

Mrs Merkel acknowledged that her plans could require renegotiation of existing EU treaties - a move which would spark fresh calls for a referendum in the UK.

But diplomats said it might be possible for the changes to be 'tacked on' to the treaty paving the way for the accession of Croatia to the EU next year.

Gordon Brown yesterday sought to play down the significance of the plans, insisting that Britain had ceded no new economic powers to Brussels.

But critics said the Prime Minister had 'fallen victim to another Franco-German stitch-up' which would lead to unprecedented interference into Britain's economic affairs by Brussels.

It also emerged today that £650 million of British taxpayers' money could go towards funding a bail out of Greece, if the International Monetary Fund has to step in to prevent the collapse of the euro.

EU President Herman Van Rompuy, who has previously called for the EU to be given sweeping economic powers, will now lead a task force to flesh out the plans for economic government by the end of this year.

The task force will look at ways of imposing 'better budgetary discipline, exploring all options to reinforce the legal framework'.

Mr Brown said there was 'no suggestion that Britain is being in any way bypassed by this'.

But he conceded that Britain, which has traditionally been wary of EU interference in economic affairs, would be just one voice among 27 on the task force.

Tory MP Bill Cash said it was clear Mr Brown had been outmanouevred by those pressing for closer European integration.

Mr Cash said: 'We have fallen victim to another Franco-German stitch-up. We have got to fight this drive for political union, which is what this idea of economic government is all about.

'The idea of making these very significant changes through the existing legal framework is a complete con trick. They know a new treaty will require a referendum in Britain and they want to avoid it at all costs.

'The EU's stability and growth pact is a complete failure - there is no stability, no growth and no pact. They know it themselves but they are still trying to drive this forward for political reasons. They never give up - it is like a tsunami that never stops.'

Even a limited move to impose sanctions only on Eurozone countries could put a future Conservative governmentin a quandry, as David Cameron has pledged to hold a referendum on any treaty which involves institutional changes to the operation of the EU.

Mats Persson, director of the think tank Open Europe, said the proposals for economic government were potentially more significant than the Lisbon Treaty, which was finally pushed through last year without the promised referendum in the UK.

Mr Persson said: 'Merkel's vision is quite clear - countries which run persistently high deficits should face heavy sanctions.

'These would be imposed by the European Council in a vote in which there would be no veto and the member state concerned would be excluded.

'It is a massive step, giving the EU powers over a country's economy, which hhas been a no-go zone until now. It would effectively give the European Council the power to sign off national budgets.

'It is a more significant step towards integration than the Lisbon Treaty. It is extraordinary that they are pursuing now, at a time when there is no public support for greater integration anywhere in Europe.'

The idea of creating a single economic policy for the EU has long been a French dream.

Mrs Merkel has warmed to the idea in the wake of the Greek economic crisis, which has raised the prospect of Berlin being asked to foot the bill for a bail out of the Greek economy.

The German Chancellor today insisted that the IMF be asked to help fund any bail out, despite protests from some member states that the move would represent a humiliation for the Eurozone.

But she also now wants tough powers to prevent a repeat of the Greek crisis by imposing sanctions on countries which manage their economies badly.

Any move along these lines could ultimately affect the UK, which has a budget deficit of 13 per cent, according to EU figures - higher even than the 12.5 per cent figure in Greece.

Diplomatic sources said the possible £20 billion bailout of Greece would involve a 'substantial' contribution from the IMF of up to £13 billion.

The remainder would come in the form of loans from other Eurozone countries.

Mr Brown stressed that Britain would not be 'directly' involved in any bail out. But a £13 billion contribution from the IMF would involve around £650 million from the UK.

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