Osborne warns UK may leave EU over reform failure

Chancellor George Osborne has raised the prospect of Britain leaving the European Union if the 28-nation bloc fails to undertake fundamental reforms to improve competitiveness, create jobs and protect the rights of countries which are not in the single currency. 

And he suggested that if the UK was unable to secure support for reform from all EU states, it was ready to press ahead with a smaller group of like-minded countries under what he termed ''enhanced co-operation''. 

In a keynote speech, the Chancellor said that the treaties underpinning the EU were no longer ''fit for purpose'' and failure to reform will condemn the continent to a future of economic crisis and decline, warning: ''We can't go on like this.'' 

Mr Osborne stressed the Government's determination to renegotiate the terms of British membership in order that the UK can remain in the EU following a referendum in 2017. 

But he said that growing integration of the eurozone had posed threats to the position of Britain's financial services industry and the City of London and said it was ''absolutely necessary'' to introduce proper legal protection of the rights of EU states which are not in the eurozone. 

He warned Brussels not to put the UK in a position where it has to choose between joining the single currency to protect its interests or leaving the EU. 

Speaking to a conference hosted by the thinktank Open Europe and the Fresh Start Project in London, Mr Osborne said: ''Europe urgently needs economic reform. 

Eurozone integration is necessary if the euro is 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. 

''I believe it is in no-one's interests for Britain to come to face a choice between joining the euro or leaving the European Union. We don't want to join the euro, but also our withdrawal from a Europe which succeeded in reforming would be bad for Britain. And a country of the size and global reach of Britain leaving would be very bad for the European Union.'' 

Mr Osborne added: ''It is time to change the European Union and to change Britain's relationship with it and then to place the decision in the hands of the British people. Do we want to stay in a reformed Europe or would we prefer to leave? 

''That is our policy and that is our commitment to the British people.'' 

He said: ''Now we have the chance to give the British people a real choice. The biggest economic risk facing Europe doesn't come from those who want reform and renegotiation, it comes from the failure to reform and renegotiate. It is the status quo that condemns the people of Europe to ongoing economic crisis and continuing decline. 

''There is a simple choice for the European Union - reform or decline. 

''Our determination is clear - to deliver the reform and then let the people decide, and that is exactly what we will do.'' 

Mr Osborne's intervention came after Euro-sceptic backbenchers shattered the Tory truce on Europe with a call for Parliament to be given a veto over EU legislation. 

Ministers were quick to dismiss the plan - set out in a letter signed by 95 Conservative MPs - as ''unworkable'', warning that it would undermine the single market. 

Mr Osborne however made clear that ministers recognise a need for reform of the EU, at a time when Europe is falling behind the rising economic powers of Asia, while its welfare spending outstrips the rest of the world. 

The financial crisis of 2008 had dramatically exposed the underlying weakness of the European economy, he said. 

''We knew there was a competitiveness problem in Europe before the crisis. But the crisis has dramatically accelerated the shifts in the tectonic economic plates that see power moving eastwards and southwards on our planet,'' said the Chancellor. 

''Over the last six years, the European economy has stalled. In the same period, the Indian economy has grown by a third. The Chinese economy by 50%. Over the next 15 years Europe's share of global output is forecast to halve. 

''Make no mistake, our continent is falling behind. Look at innovation, where Europe's share of world patent applications nearly halved in the last decade. Look at unemployment, where a quarter of young people looking for work can't find it. Look at welfare. 

''As (German chancellor) Angela Merkel has pointed out, Europe accounts for just over 7% of the world's population, 25% of its economy, and 50% global social welfare spending.'' /News agencies