Exclusive: Britain open to treaty change to help save euro zone

BRUSSELS (Reuters) - Britain is open to allowing changes to the European Union's treaty if it can help the euro zone resolve its debt crisis, Britain's employment minister said on Wednesday, potentially removing a hurdle to closer integration in the currency bloc.

"We think there needs to be rapid progress towards dealing with the euro zone problems. If treaty change is the means to that end, then we would recognize that as a necessity," Chris Grayling, employment and welfare minister in the coalition government, told Reuters during a visit to Brussels.

Asked if British demands for EU powers to be repatriated to London in return for treaty change would drag out the process of negotiating the changes, Grayling said: "I would hope that all of this could get resolved quite quickly."

Germany and France are pushing for changes to the EU's fundamental law to be made quickly so that stricter budget measures can be imposed only on the 17 euro zone countries.

But emboldened by the crisis, some members of Prime Minister David Cameron's Conservative Party want to scale back or cut ties with the European Union.

Even though Britain is not a member of the euro zone, senior officials in Brussels worry that changes to the Lisbon Treaty, which would have to be signed by all of the EU's 27 members, could be hindered by London demanding to get back some powers already ceded to the EU, for example on financial services, in exchange for its backing.

But the impact of the debt crisis on Britain, where the government revised down economic growth next year to just 0.7 percent, is prompting a more nuanced response, and treasury officials say Britain must do what it can to help the euro zone.

"It is in Britain's interest to help the euro zone help itself," said one British official familiar with early contacts between Britain and its European partners on the issue.

Cameron will meet French President Nicolas Sarkozy on Friday and is expected to discuss treaty change. Grayling declined to say what individual British demands might be, but he said London's main concern was ensuring it did not lose influence.

"Whatever comes out of this has to provide proper, acceptable protection for Britain," he said. "It cannot be the case that a fiscal core to the EU that has taken a significant step towards to common tax systems and common budgetary control is in a position to dictate terms to non-euro zone states."

According to one EU official, an opt-out for Britain in financial regulation, an idea that had been touted because of the threat from new EU rules to the financial centre of London, was not a likely demand.

"Britain has not communicated that explicitly, but if you read between the lines, then London wants an opt out of social legislation like the working time directive," he said.

NO NANNY NEEDED

Conservatives have long opposed EU rules that limit working hours, seeing them as a limit to entrepreneurship and accusing Brussels of creating an "EU nanny state." But Britain has gradually secured opt-out clauses on the rules, and London is more concerned about not seeing them slip.

Britain must now balance its sovereignty concerns against the wider fate of the economy and its influence in the EU.

Surveys show business confidence in Britain and the euro zone falling towards the lows of the 2008/2009 recession, the deepest financial crisis since the 1930s.

Given that, Vicky Ford, an influential Conservative lawmaker in the European Parliament, also played down speculation that there would be extensive demands from Britain which could hold up changes to the EU's treaty.

"Britain is not alone in saying that there are issues decided at an EU level that could be decided at a national or even local level -- this goes for the working time directive, common maternity rules and many other areas," Ford said. "If there was a treaty negotiation on the table, those elements should be a part of it," she told Reuters.

EU diplomats are working with European Council President Herman Van Rompuy to define what changes might be needed to the Lisbon Treaty for greater euro zone integration and then what the legal necessities are.

Van Rompuy's aim is to deliver an interim report before a summit on December 9 to allow euro zone leaders to make a political declaration on treaty change then. A EU summit in March could give the EU a mandate for limited treaty change, followed by an intergovernmental conference to draft the amendments.

Ideally for Berlin, the entire process would be completed by the end of next year, with ratification in 2013, officials say.

"We believe treaty change can be a contribution to show one very important thing: that the euro is irreversible," European Commission President Jose Manuel Barroso told reporters.

(Additional reporting by John O'Donnell and David Brunnstrom, writing by Robin Emmott; Editing by Ruth Pitchford)