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Britain wants to opt-out on paying for next eurozone bailout

European Union members that don’t use the euro want big changes

Ian Forsyth/Getty Images
Chancellor of the Exchequer George Osborne wants to protect members of the European Union who don’t belong to the euro.

(MarketWatch) — Britain is seizing upon the Greek bailout to make its case for a two-tier European Union with more flexibility in the terms of membership.

The use of an EU-wide fund to provide a bridging loan in the Greek bailout has spurred Britain’s push to win more protection for countries that don’t use the euro EURUSD, -0.0353% against decisions by the countries that do use it that may be against their interests.

Leading the charge ahead of a referendum on EU membership is Chancellor of the Exchequer George Osborne, who is widely perceived as being groomed to succeed David Cameron as prime minister if the Conservative Party stays in power.

In an interview this week with the New Statesman, Osborne said the relationship of the noneuros and the euros is the “single most important issue” as Britain seeks to renegotiate its membership.

“If you are someone who believes in the European Union and wants Britain to stay in, you cannot ignore this issue,” Osborne told the magazine, “because the European Union was not designed to accommodate two classes of members, where one group, the majority, is rapidly integrating to try to make the single currency work, and the other group, particularly Britain, doesn’t want to be part of that ever-closer union.”

The comments echo those he made Tuesday in testimony to the Economic Affairs Committee in the House of Lords and remarks he made last month in a visit to Scandinavia, where Sweden and Denmark are also noneurozone countries.

Osborne’s new push comes after the eurozone’s decision in July to use the European Financial Stabilization Mechanism (EFSM) for a 7 billion euro bridging loan to Greece exposed noneuro members to possible losses. These countries successfully lobbied for guarantees that they would be compensated for any eventual loss.

In his testimony to the Lords committee, Osborne complained that the decision to use the EFSM — despite previous agreements that it would not be used in eurozone bailouts — was made in a crisis meeting with no noneurozone country official in the room.

Although Britain obtained guarantees in this particular case, Osborne was told by EU officials that the nine noneurozone countries didn’t need to be consulted because the 19 eurozone countries have the qualified majority necessary to make such decisions.

“The current voting rules meant that eurozone states were able to push through the loan against the wishes of noneuro states,” said a report published this week by Open Europe, a think tank founded in 2005 to promote reform in the EU. “Furthermore, they did so because it was more politically convenient to row back on this agreement with other EU states than face their own national parliaments and voters. Both precedents highlight the urgent need for stronger noneuro safeguards.”

The think-tank report calls for a reform of voting procedures that allows noneurozone countries to block such majority votes from binding them — a move the report says can be made without a treaty change.

Longer term, the report recommended a treaty change to specify that membership in the euro would no longer be compulsory for EU members.

Denmark and Britain negotiated a permanent opt-out when this requirement was adopted but other EU members not yet in the euro are theoretically required to join at some point.

“This risks relegating noneuro states to second-class membership,” the Open Europe report said. “There should be formal recognition that the EU is a ‘multi-currency union’ – this means removing the obligation for all current and future EU states to join the euro.”

In fact, Sweden has indefinitely postponed joining the euro, arguing that fulfilling the requirements for joining the euro are voluntary, and East European countries that have joined the EU more recently have slowed their efforts to comply with the requirements for the joint currency.

“A large number of states are likely to stay outside the eurozone for some time to come,” Raoul Ruparel, coauthor of the report, noted in a blog post. “A better settlement between these groups is needed.”

Another coauthor, Stephen Booth, spelled out the consequences in comments to the Daily Mail, “This means redefining membership of the EU as membership of the single market and putting in place voting procedures that safeguard the national interests of noneuro countries.”

This would permit countries that desire closer integration with the joint currency to move ahead while protecting the rights of EU members that don’t want to go down that path, Booth said.

Left unsaid in the British discussion is the implication that formal recognition of a two-tier EU would open the door for current euro members to exit the joint currency without the stigma of becoming second-class citizens.

In the meantime, the political fallout from the Greek crisis now includes galvanizing British efforts to introduce more flexibility in EU membership.