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UK call for ‘multicurrency’ EU triggers ECB alarm

George Parker and Alex Barker
U.K. Prime Minister David Cameron
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David Cameron's push to rebrand the EU as a "multicurrency union" has triggered high-level concerns at the European Central Bank, which fears it could give countries such as Poland an excuse to stay out of the euro.

The UK prime minister wants to rewrite the EU treaty to clarify that some countries will never join the single currency, in an attempt to ensure they do not face discrimination by countries inside the eurozone.

Mario Draghi, president of the ECB, is worried the move could weaken the commitment of some countries to join the euro.

Beata Szydlo, the new Polish premier, has previously described the euro as a "bad idea" that would make Poland "a second Greece".

Mr Draghi shares concerns in Brussels that the EU single market could be permanently divided across two regulatory spheres, with eurozone countries facing unfair competition if there were a lighter-touch regime on the outside.

The idea of rebranding the EU as a "multicurrency union" was raised during a recent meeting in London between George Osborne, the UK chancellor, and Mr Draghi. Mr Osborne said last month that Britain wanted the treaty to recognise "that the EU has more than one currency".

Mario Draghi
Draghi: 'No particular limit' to ECB policy tools

Under the existing treaty, the euro is the official currency of the EU and every member state is obliged to join — apart from Britain and Denmark, which have opt-outs. The common currency is used by 19 out of 28 member states.

Sluggish growth and a debt crisis have made the euro a less-attractive proposition in recent years, and Mr Draghi's concern is that a formal recognition that the EU is a "multicurrency union" could make matters worse

"He's worried that people would resist harmonisation by arguing that the UK and others were gaining an unfair advantage," said a British official. The ECB said the bank had no formal position on the issue.

British ministers are confident that the ECB's concerns can be addressed, possibly with a treaty clause making clear that every EU member apart from Britain and Denmark is still expected to join the euro.

One official involved in the British EU renegotiations said that any safeguards for Britain must not "permanently divide the ins and outs" or force countries to pick camps. "Whatever we do cannot impair the euro in any way. The single currency must be able to function," the official said.

Since the launch of the single currency in 1999, the ECB has consistently argued that a single market and currency must have common governance and institutions.

Deposit rate cut is adequate for now: ECB VP
Deposit rate cut is adequate for now: ECB VP

One European adviser familiar with Mr Draghi's views said: "Eurozone countries won't want to give a competitive advantage to those outside and will use it as an excuse. That is what worries him."

Frankfurt's wariness over London's agenda is also in part a hangover from its four-year court battle over the ECB's "location policy", requiring clearing houses relying on ECB liquidity to decamp from London to the eurozone, which London won.

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Britain is seeking stronger legal protection against such "discrimination" against British financial firms, but diplomats say that cannot extend to determining policy of the eurozone's central bank.

"Britain cannot govern the ECB because they do not participate in it and that is something we cannot change," said one EU diplomat.

Several people involved in the negotiations said in the last resort the ECB's concerns would not prove a deal-breaker. "Everyone is welcome to contribute their views," said one.

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