(Adds reference to energy, defence, single market in paragraph 5)
By Paul Taylor and Mike Peacock
BRUSSELS Feb 13 European leaders need to rebuild the unity of the European Union, badly fractured in the euro zone debt crisis, and address the worries of populist voters, Finnish Prime Minister Jyrki Katainen said on Thursday.
Speaking at a Reuters Euro Zone Summit, the centre-right leader said mutual resentment between citizens of northern creditor states and poorer debtor countries was fuelling euroscepticism and posed a threat to the 28-nation bloc's unity.
"In some countries people are thinking that integration is not fair if we have to pay for other countries' decision-makers' mistakes," he said.
"In some southern European countries people are thinking that the northern Europeans are arrogant ... and they are not ready to help. If there are two fronts - north and south or whatever - it harms the sense of fair integration."
Katainen said calls for more European "solidarity" or a United States of Europe scared people unnecessarily at a time when globalisation had made them fearful for their jobs and standard of living.
"I don't see the areas in which we should go deeper," he said of the economic governance of the euro zone. The EU could develop its single market further, notably in energy, and boost defence cooperation within its existing structures.
The enforcement of overhauled budget discipline rules and the creation of a banking union with a single supervisor and a mechanism to wind up failed banks without making taxpayers pay had achieved the main changes needed to stabilise the euro zone.
Asked whether the EU treaty should be changed in the next five years after European Parliament elections in May, Katainen said he was a pragmatist and most of what Europe needed could be achieved by strengthening and extending its internal market.
The key reforms to pensions, labour markets and education needed to keep Europe competitive with China and the United States, and make its social model affordable, were in the hands of national governments rather than of Brussels, he said.
"THEY CAN CALL"
Katainen called for a single market in clean technology, noting that Finland was producing third-generation non-food biofuels that were sold in the United States but could not enter some EU countries because regulation had not kept pace with innovation.
To combat eurosceptics, who threatens to make big gains in the pan-European election, EU leaders should address the "fair and right questions" of voters tempted by populist politicians rather than talking to the leaders of such parties.
"We cannot exclude those parties from politics because there are people behind them who are asking right questions," he said. "Direct speaking to the people is the best medicine."
Diplomats tip Katainen, 42, as a possible compromise candidate for one of the top EU leadership positions this year if the official frontrunners fall by the wayside.
He said he was not campaigning and would support veteran former Luxembourg Prime Minister Jean-Claude Juncker as the European People's Party lead candidate for parliament and for president of the European Commission.
"As we have seen every time when there have been some nominations, it has been full of surprises," he said.
Asked if he was prepared to take a European role if asked, Katainen said: "People know me ... if they want to call, they can call. I pick up the phone."
The Finnish leader, who said his own country needed to reinvent itself every 20 years to remain competitive, voiced support for keeping Britain in the EU, saying its liberal, free trading voice was vital to the bloc.
But he cautioned against calls in London to repatriate powers from Brussels, saying the solution lay in better regulation.
"I hope that the situation in Britain doesn't go too far that then there is no way back," Katainen said. (Additional reporting by Luke Baker)