Cameron tells Merkel: new EU treaty is a red-line issue

DAVID Cameron appeared to be on course for a conflict with Germany yesterday after he made it clear he would block any attempts to draw up a new treaty giving the European Union powers over national budgets.

The new Prime Minister's meeting German chancellor Angela Merkel in Berlin yesterday was overshadowed by continuing concerns over the euro and the countries which use the currency.

Against fierce domestic opposition Ms Merkel yesterday persuaded members of the Bundestag, Germany's parliament, to back a massive bailout package for Greece. Germany will have to contribute up to 148 billion of the total 750bn (651bn) rescue package.

But it was clear that she had failed to persuade Mr Cameron of the need for a new treaty to help resolve some of the problems with the euro. Ms Merkel wants Brussels to have far greater powers to force member states of the eurozone to have their budgets approved centrally.

The move has been seen by some critics as a power grab by Germany over not only southern European economies known as the PIGS – Portugal, Italy, Greece and Spain – but over the EU as a whole.

While the UK is not a member of the eurozone, the implications of such a treaty would still have an effect on the British government because it is tied to the EU. And in a press conference after their meeting, Mr Cameron made it clear that he had no intention of agreeing to a treaty which would further erode Britain's sovereign powers.

He pointed out that any such treaty would now be subject to a referendum in the UK, something he has agreed with his more Euro-friendly coalition partners the Liberal Democrats.

He also insisted that Britain would not be "drawn further" into bailing out eurozone countries. He went on: "There is no question of agreeing to a treaty that transfers power from Westminster to Brussels. That is set out 100 per cent clearly in the coalition agreement.

"Britain obviously is not in the euro and Britain is not going to be in the euro, and so Britain would not be agreeing to any agreement or treaty that drew us further into supporting the euro area."

The Prime Minister added: "It goes without saying that any treaty, even one that just applied to the euro area, needs unanimous agreement of all 27 EU states including the UK, which of course has a veto. I think these are very important points to understand."

But in an attempt to placate his host, Mr Cameron stressed he wanted a "successful" euro area that was "able to deliver growth and stability". He said: "I want Britain to be a positive player in Europe.

"I want us to work together to achieve the economic stability, the growth and action on European deficits that we know is very much in the interest of all our countries and in the interests of a strong, stable economy which we very clearly need.

"Britain is not a member of the euro, nor are we likely to become a member, but we want a strong and stable eurozone. That is where 50 per cent of our trade goes and it's in our interest that that takes place."

But he made no specific pledges and there will be no extra money for Greece from Britain on top of the 8bn euros handed over by Labour chancellor Alistair Darling.

However, Ms Merkel made it clear that she would still be pushing for a new treaty despite British opposition and she claimed the talks with Mr Cameron had been positive.

Ms Merkel said: "It has been very important to us that in connection with the situation in Greece, the EU is putting in together a cooperation that focuses on stability of the euro.

"There are a lot of things to discuss about this. The coalition has made some suggestions. We also have some ideas of how contracts can be formulated. But I want to make clear we are at the start of this and even in the eurozone there is no unity on exactly what we should be doing.

"I've made it clear that we need to stabilise the euro but at a later stage we will be able to say what we can do and how we should do it. And then we will see what the majority will want and the interests of the eurozone."

Mr Cameron was on the second leg of his meetings with EU leaders, having held talks with French president Nicolas Sarkozy on Thursday.

His new Chancellor, George Osborne, also met fellow EU finance ministers to discuss the ongoing euro crisis. The meeting concentrated on stepping up "economic governance" across Europe in response to the economic crisis.

Mr Osborne arrived for his second Brussels trip in four days and went straight into a private 20-minute meeting with EU President Herman Van Rompuy – also emphasising that Britain wanted to help improve economic co-operation but would not hand over economic sovereignty to Brussels.