Cameron threatens new EU treaty

DAVID Cameron last night threatened to veto a new European Union treaty to help solve the eurozone debt crisis unless it safeguards the City of London.

The Prime Minister raised the stakes over the Franco-German plan to rescue the single currency after it emerged that the proposed treaty is likely to cover all 27 EU members, including the UK.

Some British ministers had hoped it would need approval only by the 17 eurozone nations, which would have reduced the pressure on Mr Cameron from Eurosceptic Tory MPs to win concessions in return for signing it.

France favours a 'eurozone-only' deal but EU sources suggested yesterday that a majority of countries back Germany's plan for an EU-wide treaty.

So does the European Commission, amid legal doubts over whether a 17-nation deal could use  bodies such as the European Court of Justice to impose budgetary curbs on governments.

A proposed rescue package was set out in a letter to EU governments by Herman Van Rompuy, president of the European Council - the 27 heads of government who will discuss a treaty change in Brussels tomorrow night.

A leaked draft calls for "more intrusive control of national budgetary policies by the EU", with the Commission empowered to impose austerity measures on countries needing a bailout.

But some of his most controversial ideas - such as depriving bailed-out countries of EU voting rights - have run into opposition and may be dropped.

After Tory MPs stepped up calls for Mr Cameron to secure a 'repatriation of powers', the Prime Minister warned fellow EU leaders that he would ensure at the Brussels summit that the EU single market and Britain's financial services industry would be protected.

He told the BBC: "I will not sign a treaty that does not have those safeguards in it, around things like the importance of the single market and financial services.

"If they choose to go ahead with a separate treaty, then clearly thatis not a treaty Britain would be signing or amending, but if they want to use the European institutions then we will be insisting on the safeguards and the protections that Britain needs."

He conceded the most important British interest now was to sort out the eurozone crisis.

"We want the single currency crisis solved, but we want to protect and defend British interests at the same time," he said.

His stance will anger some in the eurozone, who have accused Britain of lecturing them from the sidelines while refusing to contribute to euro bailout funds.

It could force the summit to opt for a 17-nation deal rather than an EU-wide one. In practice, countries who want all 27 to sign might offer Mr Cameron a form of words reaffirming their commitment to the single market.

In the latest of a sequence of steps towards a euro rescue package, the European Central Bank is tomorrow expected to cut interest rates by 0.25 points to a record low of 1 per cent.

There is anger in Brussels at ratings agencies after Standard & Poor's said 15 euro nations, including Germany and France, could lose AAA status.

Yesterday S&P issued a similar warning over the bailout fund, the European Financial Stability Facility.