George Osborne threatens referendum over place in the EU

Warning comes after Germany rejects demands for immediate action to save euro

George Osborne delighted Tory MPs yesterday – and fired a shot across the bow of European leaders – as he signalled that ministers were prepared to call a referendum over Britain's place in the European Union.

The Chancellor also warned that the Government was ready to wield its veto in Brussels if there was an attempt to impose fresh controls on British banks as a result of moves to tackle the deepening eurozone crisis.

He spoke out after David Cameron returned from talks in Berlin with the German Chancellor, Angela Merkel, at which she rejected Britain's demands that Germany come up with an immediate plan of action to prevent the implosion of the euro.

He is pressing for Germany to take decisive action within weeks to rescue such beleaguered economies as Greece and Spain and shore up the currency. But she told him that it would "take years" to fix the single currency's problems.

Britain strengthened its rhetoric over Europe yesterday after months of demands from Tory MPs to use the chaos to stage a referendum on British membership of the EU. The Coalition's policy is to stage a nationwide vote only if there is any attempt to transfer power from Britain to Brussels.

But in remarks that were aimed as much at EU leaders as the Tory right-wingers, Mr Osborne suggested that could happen if negotiations over the eurozone resulted in a "reshaped relationship with Europe". He said: "A reshaped relationship with Europe would imply, would involve, a transfer of sovereignty or powers to Brussels. I think we have a very clear safeguard in the system now, thanks to this Government.

"If there is any transfer of power from this country, transfer of competence or transfer of sovereignty from this country to the European Union, then there will be a referendum."

Although Mr Osborne said there was a "remorseless logic" to creating "something more akin to a banking union or a financial union" among eurozone members, he made clear Britain would not be part of it.

In a warning that the country would use its veto to prevent fresh curbs on the City of London, he said: "Let me be absolutely clear: there is no way that Britain is going to be part of that banking union. We are not part of the eurozone. We chose not to join the euro, precisely because of the loss of national sovereignty that would be involved, the loss of flexibility to manage our banks in the way we wanted to, to manage our public finances in the way we wanted to."

Mr Cameron went to the Berlin talks with Barack Obama's backing to urge Ms Merkel to come up with an "immediate plan" to put the brake on the crisis sparked by spiralling Greek debt and Spain's continuing inability to recapitalise its banks to the tune of €80bn (£65bn).

The need for action was brought into sharper focus last night as Fitch, the ratings agency, downgraded Spain's sovereign debt rating three notches, from A to BBB. The agency said the likelihood of external financial support is rising.

Fitch also said Spain's financing difficulties will make it hard for it to intervene decisively in a banking-sector restructuring and raise the likelihood of outside external help.

Mr Cameron urged Ms Merkel to accept the introduction of eurobonds to provide an immediate remedy, but Ms Merkel gave no sign that Germany was prepared to alter its opposition to eurobonds. She told Mr Cameron: "It is human to think that the euro crisis could be solved in one fell swoop, but I don't think this would work. The euro crisis developed over 10 years and it is going to take several years before we can repair the system and make it viable again."

Mr Cameron told reporters after the meeting: "I am pressing the case for action to solve the financial crisis, recapitalise the banks and build the big firewall to get growth going. All these things need to happen."

In a television interview given earlier, Ms Merkel stressed the need for far greater convergence in Europe at all levels.

"We need not just a currency union, we also need a so-called fiscal union with more common budget policies," she said. "We need above all a political union. That means we must give up powers to Europe."

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