UK Will Be Forced to Join the Euro or Leave the EU If Brussels Power Not Reformed, says Report
UK Will Be Forced to Join the Euro or Leave the EU If Brussels Power Not Reformed, says Report Reuters

The UK will be forced to join the euro or leave the European Union if the country does not secure "considerable reforms" to the setting of EU financial regulation, a Europe Economics report, commissioned by Business for Britain (BfB), has warned.

The scathing report said since the 2008 financial crisis and the eurozone crisis of 2010, the nature of EU financial regulations have changed significantly and that the UK's influence on EU-level financial services regulation has declined markedly.

"Britain's influence upon EU financial regulation has been an important gain of EU membership in the past," said Dr. Andrew Lilico, author of the report and Director of Europe Economics.

"But that influence has waned severely since 2008, and as matters stand, with the non-eurozone EU set to shrink to only between two and five members within a decade, and with the very different interests of the eurozone dominating new EU financial regulation, the future appears likely to be one of Britain being systematically over-ruled by the eurozone.

"Changing that in any sustainable way would require not only new voting rules but also many new long-term non-eurozone EU members."

Business for Britain was launched in April 2013 and is an independent, cross party campaign for a better deal for the UK from the European Union backed by a referendum.

'Reform or We'll Leave'

In January this year, UK Chancellor George Osborne told the EU that Britain is likely to exit the bloc unless it overhauls its structure and the power it has over its members.

Osborne said "our determination is clear: to deliver the reform and then let the people decide.

"It is the status quo which condemns the people of Europe to an ongoing economic crisis and continuing decline. And so there is a simple choice for Europe: reform or decline," he added.

He promised if Conservative party is re-elected in 2015, they will keep their promise to renegotiate the UK's EU ties before offering Britons an in/out membership referendum.

BfB acknowledged the benefits of being a member within in the 28-nation bloc and said that "prior to the eurozone crisis, the general thrust of EU financial services measures reflected the UK's traditions of liberalisation, competition and the encouragement of trade meaning EU-level financial regulation affected other member states much more than it affected the UK. EU regulations tended to mirror pre-existing UK rules."

However, it says that the direction and way the EU structures financial regulation is hurting Britain's prospects in the long run.

"EU-wide financial regulation may have opened up markets to the UK in past, but now it looks set to ensure the UK is comprehensively overruled by the Eurozone's needs - at the expense of our greatest global asset," said Matthew Elliott, chief executive of Business for Britain.

"The UK's power to influence EU decisions has declined markedly and unless major reforms are secured, Britain will be faced by the stark choice of either joining the Euro or leaving the EU altogether.

"Politicians at home need to secure Britain a new deal abroad to ensure the city, and business more widely, benefits from its position within Europe, rather than being weighed down by it."

The Impact from Leaving the EU

Independent economists and investment banks have voiced serious concerns over the impact a UK exit from the EU- dubbed "Brexit" – could have on the country.

Many warn that Britain will lose its transatlantic trade clout should the country opt to leave the European Union - dubbed the "Brexit".

For example, Osborne has warned the EU that stalling the EU and US free trade deal would be a "betrayal" and that the UK would be forced to exit the 28-nation bloc if it did not reform.

Osborne said that the world's biggest free-trade deal should be open to the idea of a smaller number of EU states liberalising trade in certain areas, even without an overall EU agreement.

The EU-US agreement is expected to boost the bloc's economy by €120bn ($161bn, £100bn) and the US economy by €90bn, according to independent research.

David Cameron
David Cameron has pledged an in/out EU referendum for the UK if he is re-elected (Reuters)

Furthermore, the global economy would get a €100bn boost from the deal.

As of 2011, the US and the EU maintain a total of nearly $3.7tn in investment in each other's economies.

Businesses also want to see reform but not an exit.

British Chambers of Commerce's (BCC) director general, John Longworth, said in May that it is evident that businesses in the UK want to see changes in their relationship with the single market, but the majority do not want to leave it.

However, Britain's business secretary Vince Cable believes uncertainty over whether the UK will leave the EU has already spooked investors and is holding back a full economic recovery.

"The prospect of a referendum and possible exit from the EU is deeply unsettling for businesses trading in the European single market, from the car industry to financial services," said Liberal Democrat Cable.

"The actual risks of leaving may be small, but one of the most useful contributions to recovery our coalition partners could make, in the national interest, would be to do more to remove this unnecessary risk."