Article for the 4th of October

European Commission head Jose Barroso backs EU tax on City deals

European Commission President Jose Manuel Barroso adresses the assembly of the European Parliament in Strasbourg

Photo: Patrick Hertzog/AFP/GETTY IMAGES

By Robert Winnett, Deputy Political Editor

Last Updated: 6:27AM BST 29/09/2011

The head of the European Commission yesterday backed calls for a Europe-wide tax on financial transactions which the Tories believe would damage the British economy.

José Manuel Barroso said the European transaction tax should be introduced in the wake of the financial crisis.

Mr Barroso’s move comes amid growing tension within the Coalition over Britain’s relationship with Europe.

Nick Clegg will today warn that Britain should not seek to distance itself from the EU.

Mr Barroso said Europe was “facing the greatest challenge in the history of our union”.

“If we do not go for further integration, we risk fragmentation,” Mr Barroso told the European Parliament. “We need to complete our monetary union with an economic union.” However, George Osborne, the Chancellor, has said that Britain will veto the tax plan, which was proposed by the French and German governments, amid fears over the damage it will cause the City.

In a speech, the Deputy Prime Minister will say it would be a “disaster” for the EU to become more “fractured” and “fragmented”, and will call for new European-wide defence co-operation.

The remarks put Mr Clegg at odds with his Conservative ministerial colleagues who are hoping to use the euro crisis to return control of some policy to Britain.

In an interview published last night, William Hague, the Foreign Secretary, describes the eurozone as a “burning building with no exits”, and calls for Britain’s relationship with Europe to be renegotiated and watered down.

“The EU does have too much power,” Mr Hague says in this week’s Spectator magazine. “I haven’t changed that view since being in government, in fact if anything, being in government has reinforced that view. There should be powers that are returned to this country. I think we should be clear in the Conservative Party that that is where we are heading.”

More than 100 Conservative MPs have backed a group putting pressure on David Cameron to loosen Britain’s ties with Europe, and the issue to set to be one of the key issues at next week’s Conservative Party conference.

Mr Clegg, a former member of the European Parliament, will travel to Poland today for talks with other European leaders, including the German Chancellor Angela Merkel, and give a major speech on the future of the EU.

He is expected to say: “The danger we face, which I will address today, is of change leading to fragmentation. That we become divided, turning away from each other, both within the European Union and with our partners who are not, or not yet, members of it … that would be a disaster.” The europhile Deputy Prime Minister will also call for pan-European defence co-operation after the British and French operation in Libya, putting him on a collision course with Dr Liam Fox, the Defence Secretary.

Today, is set to be crucial for the future of the Eurozone with Germany’s lower Parliament voting on whether to back European plans to bailout Greece and other beleaguered countries. Although German politicians are expected to back the plan, the financial markets are likely to scrutinise the level of support to establish whether future rescue packages may be blocked.

Yesterday, Citigroup, the world’s biggest bank, said that it predicts the European economy to contract in size next year.

Willem Buiter, the chief economist at Citigroup and a former member of the Bank of England’s monetary policy committee, said there was a risk that the debt crisis spreads to France and Belgium.