Brown blow on federal Europe

GORDON BROWN today called for European ministers to drop attempts to create a federal Europe and focus instead on the global economy.

Appearing to distance himself from Prime Minister Tony Blair and his Continental counterparts, the Chancellor urged ministers to abandon plans to integrate tax and fiscal policies.

Brown's call, in the Wall Street Journal Europe, came as politicians met for a summit meeting on a proposed constitution and on an economic growth plan for the European Union.

The Chancellor's comments are sure to set alarm bells ringing in Downing Street and Brussels as he argues against tax harmonisation and a common fiscal policy. Instead he wants to see liberalisation in labour markets and Europe becoming more competitive in world markets.

His argument is likely to have an effect on European finance ministers at today's meeting. Brown's comments run counter to the joint economic government favoured by most European Union finance ministers.

Brown said that out-of-date and counterproductive policies in Europe had led to 14m jobless as well as stagnation or recession in half of Europe's economies.

'Because of globalisation, Europe is entering a second and radically different stage of its economic history as a union,' Brown wrote. 'Trade bloc Europe, once taken up with its own internal rules, is now finding that policies relevant to the era of the trade bloc are not just out of date but counterproductive for the era of global Europe.'

He added: 'It is globalisation - global flows of capital and global sourcing of products, not least from Asia - that is putting all of Europe under intense and sustained competitive pressure, and forces Europe to make choices of direction it can no longer duck.'

On tax, Brown said: 'Europe must conclusively rule out tax harmonisation, agree it is a barrier rather than a spur to global competitiveness, and resolve that tax competition is the basis on which Europe can compete with the rest of the world as well as command popular support.'

He predicted harmonisation would lead to the flight of savings into tax havens such as Switzerland or Hong Kong.

Brown added: 'Right across Europe, partly because of the insecurities globalisation brings, political and cultural identities have remained firmly rooted in the nation state and only one in 10 think of themselves as principally European.'

Meanwhile, Ed Balls, Brown's chief economic adviser, used a speech in the City to ram home the message that as far as Britain is concerned the euro still does not measure up.

'Growth in the eurozone has continued to be weak,' he said. 'This is partly due to structural problems but the inability of macroeconomic frameworks to allow monetary and fiscal policy to operate fully has also played a part.'