Euro means economic control

THE euro can only survive if countries using the new currency hand over control of their economies to Brussels, it has been claimed. Taxes and welfare systems must also come under central control, or the euro will collapse.

The warning, by French finance minister Laurent Fabius, could not have come at a worse time for Prime Minister Tony Blair as he steps up his drive to persuade a sceptical British public to embrace the euro.

Fabius's remarks will be seized upon by anti-euro campaigners as evidence of a major drive towards federalism. They will also enrage Chancellor Gordon Brown, who last year slapped down proposals for tax harmonisation.

Fabius claimed on French TV that the creation of the new currency will increasingly lead to 'budgetary federalism'. He said: 'We already have monetary federalism because there is a European Central Bank which, liaising with finance ministers, defines Europe's monetary policy. I believe that faced with this monetary federalism we will increasingly move towards budgetary federalism.'

However, Fabius insisted this would not signal the creation of a European superstate. He added: 'That does not mean there will be a massive and heavy European state but I believe this co-ordination is the way things will be.'

He argued that the euro could not work in the long run unless the countries using it effectively had the same policies in all the areas that matter.

The finance minister is one of a growing number of eurocrats who believe that euro-zone countries have not converged their economic policies enough. They fear the widely varying inflation, taxes and spending policies could tear the single currency apart in the event of an economic crisis.

Fabius stressed that the EU's institutions must be reformed before it was expanded by up to 27 countries. If fundamental changes did not take place, he declared, Europe would fall apart.

Fabius's ideas are not a total surprise. Blair's main European ally, German Chancellor Gerhard Schroeder, wants a centralised European government and a parliament paid for with an EU-wide tax.

Senior Tories were scathing. Shadow Foreign Secretary Michael Howard said: 'This is yet further confirmation of what euro membership would mean for Britain. The euro has precious little to do with economics. It is a political project designed to bring about a country called Europe.'