David Cameron backs eurozone banking union

Banking union within the eurozone will not necessarily mean a fundamental change in Britain's relationship with the EU, David Cameron said today.

Plans for closer banking union between the 17 eurozone states have sparked calls for a referendum on the UK's future relations with Europe under the terms of last year's parliamentary act, which said that any treaty handing powers from Westminster to Brussels must be put to a national poll.

But Mr Cameron said it was impossible to tell whether plans for closer fiscal and financial union in the eurozone would require a series of small treaties, a single large treaty, or whether it could go ahead on the basis of "enhanced co-operation" between the countries involved.

And he said there were questions over whether the eurozone nations will be able to secure the democratic consent of their people to pursue the "remorseless logic" of the closer integration needed for the euro to survive.

Mr Cameron told the House of Commons Liaison Committee that the UK should show "tactical and strategic patience" in its response to unpredictable developments in the eurozone, rather than rushing into a referendum now when it is not clear what the UK's future position in Europe will be.

"If the 17 countries of the eurozone bring about a banking union for themselves - which I frankly think they need to do in a single currency - if they do that at the level of the 17 and we can get proper safeguards in place, then that wouldn't be a fundamental change for us," said the Prime Minister.

"So I don't think that would in and of itself trigger a massive change for us in the EU."

Mr Cameron said that Britain's current position in Europe was "unacceptable", because the balance of powers between Westminster and Brussels was not right and he wanted to bring some powers back.

He told the committee that it was in Britain's interests for the eurozone to make the steps towards integration that would stabilise the single currency and calm the markets.

But he said the most likely outcome of current efforts to deal with the crisis was that they would "kick the can down the road".

"It is difficult to know exactly the direction that the eurozone will go in, and that's why we should show tactical and strategic patience about this," he said.

And he added: "These countries are going to have to make very difficult decisions about giving up areas of sovereignty and restricting areas of their democracy.

"They are going to have more controls on what they can spend and what they can tax. That's a decision for them, it's not a decision for us."

Asked if a convention should be created to discuss the future of the EU, Mr Cameron said: "Clearly what is going to happen is if the eurozone is going to survive it will have to make moves towards a more integrated state. We won't be part of that."

He went on: "I think we are only at the beginning of those conversations... There's a lot of work to be done, there's a lot of thinking to be done and a lot of conversations to be had before we get to any convention."

The Prime Minister said European leaders were focused on "firefighting" but insisted it was "reasonable" to expect new settlements for EU countries if there is closer integration of the 17 eurozone nations.

He said: "There is an understanding that change is coming, change is going to need to accommodate different needs and I think if Britain puts its case responsibly and we explain we would like to remain part of the single market but we do have real misgivings about the status quo and as the eurozone integrates there should be possibilities for new settlements for other countries, I think that is a reasonable point to make.

"It is never going to be easy, none of these things are easy."

Asked if there could be a new treaty in Europe without a referendum Mr Cameron said: "We have already got the treaty that is in the House of Lords at the moment, which is an amendment to the European treaties. It is important to us because it is part of the deal that gets us out of the bailout fund but because it doesn't transfer any powers to Brussels there isn't a referendum."

Mr Cameron indicated a review over which powers should be brought back from Brussels had not been fully supported by the Liberal Democrats behind the scenes.

The Prime Minister said he hoped to start the substantial work on the balance of competencies review before summer.

"Some preliminary work has been done but there does need to be proper coalition agreement before full work goes ahead.

"I think to be fair to both parts of the coalition we need to describe the balance of competencies work in the right way."

Mr Cameron dismissed the idea that the UK was directly affected by eurozone states' decision to sign up to a fiscal compact limiting their freedom of manoeuvre on spending and deficits.

"The fiscal compact that they have all signed severely restricts their ability to spend and borrow and do many of the things that democratic politicians choose to do," the PM told the cross-party committee.

"They have made that decision. It affects them.

"The fact that Spain in future is going to be limited to a structural deficit of 0.5% - does that really affect us? I don't think it does.

"We are out of that. We are not in the fiscal compact, we are not in the single currency, so I don't think that in and of itself affects us."

He said he is planning a speech in the autumn setting out his thinking on the return of powers from Brussels, and said he hoped to achieve a consensus in his party.

But - in an apparent reference to his Liberal Democrat coalition partners - he acknowledged that other parties would have to conduct their own debate on the issue.

"I am going to make a speech in the autumn when I set this out in more detail," Mr Cameron told the MPs.

"I have always thought that powers over things like the social chapter and Home Office legislation are areas that I think, frankly, the EU shouldn't have got into, but certainly Britain shouldn't have got into with the EU. So those are the things I would particularly highlight.

"There is an opportunity not just for our party. I think other parties will want to have their own debate. As the European Union develops and integrates, what is the right answer for Britain?

"I hope we will be able to come up with some common answers in our party. I think there is every prospect of doing that. But I think this is a bigger debate that all of Europe should have."

PA