Federal Reserve has already started QE3, says investor Jim Rogers

Veteran US investor Jim Rogers believes the Federal Reserve has already launched a third round of quantitative easing, despite chairman Ben Bernanke failing to mention stimulus measures in his Jackson Hole speech last week.

By Andrew Trotman

Mr Rogers, who co-founded the Quantum Fund with George Soros, believes that America's central bank is secretly printing money to avoid "getting egg on their face again" after previous attempts to kickstart the faltering economy with $2 trillion of QE failed.

"I do not know if they [the Fed] will announce it," he told India's Economic Times. "I know they are going to print more money. They already are. If you look at their balance sheets, you will see that something is happening, assets are building on their balance sheets and they are not coming from the tooth fairy.

"They are a little bit embarrassed because they announced QE1 and QE2, and it did not work. So they may try to discuss it. They may just continue to do it without getting egg on their face again, but they are going to print money, they are all going to print money. It is the wrong thing to do, but that is all they know how to do."

He told the Daily Telegraph: "They probably have learned how to do things off balance sheet. I have nothing to confirm this but everyone else has learned how, so they probably have too. This is just a comment on human nature."

Mr Bernanke said in his annual speech at Jackson Hole on Friday that the country's high level of unemployment - it climbed to 8.3pc in July - is a "grave concern" and that the "economic situation remains far from satisfactory".

The US's plight is echoed across the Western world as the eurozone grapples with its own debt crisis that threatens to see Greece leave the single currency. Spain and Italy are also struggling with recession as austerity measures championed by Germany eat away at growth.

And Mr Rogers believes there is no end in sight to the eurozone's problems.

"There are going to be more problems coming out of Europe," he said. "You have got countries that are essentially bankrupt. Nobody is dealing with the problems in Europe. You look at everyone out there. They all have higher debts and all of their projections, maybe Bulgaria and one or two more countries do not have higher debts in their projections, but everybody has got increasing debt. The solution to too much debt is not more debt."

As turbulence rocks Western stock markets - the Euro Stoxx 50 index is down 3.1pc from its year-high in March after falling 18.8pc - investors have turned to emerging markets such as Asia for returns. However, Mr Rogers - whose Quantum portfolio gained 4,200pc in the 10 years to 1983 as the S&P advanced about 47pc - says the East has major problems of its own.

"I doubt [India can overcome its sluggish growth]. The debt to GDP in India is now more than 90pc. Study shows that when you get that high debt ratio, it is very difficult to grow in a dynamic way... India has inflation for its own reasons... I am not a fan of India. In fact, I am short on India."

Even China, which has enjoyed double-digit growth in recent years, is at risk from a financial crisis as the government seeks to cool the economy. Chinese manufacturing fell to a three-year low on Monday in a further sign China is headed for a "hard landing".

"China tried tightening for three years," Mr Rogers added. "It started back in 2009 or so to try to kill the inflation bubble and the property bubble. Rightly so in my view. Now they are starting to loosen up. I would not loosen up yet if I were China because they need to kill inflation totally and they need to totally pop the property bubble. But I am not China. They are going to do what they want to do."

With the eurozone crisis spreading to all corners of the globe, traditional safe havens have come to the fore. The gold price, for instance, traded above $1,900 an ounce last year but is now around $1,689. However, Mr Rogers believe this will start to rise again once governments are forced into restarting stimulus measures.

"Unfortunately, all central banks know to do is to print money. You are going to see more money printing, more debasement of currency and, therefore, the price of gold will go much higher over the course of the decade... The situation with gold is that it has been up 11 years in a row without a down year, which is extremely unusual."

Another commodity that is predicted to rise is oil, as supply issues and potential wars push the price ever higher.

"The surprise with oil is going to be how high it stays and how high it goes," Mr Rogers said. "We are running out of known reserves of oil. There may be a lot of oil in the world. If there is, we just don't know where it is. So prices are going to stay high and go much higher. If America goes to war with Iran, they are going to skyrocket."

Mr Rogers recommends buying oil if the price crashes on a country such as Spain leaving the eurozone.

Finland prepares for break-up of eurozone

Finland is preparing for the break-up of the eurozone, the country’s foreign minister warned today.

By Ambrose Evans-Pritchard, in Helsinki

The Nordic state is battening down the hatches for a full-blown currency crisis as tensions in the eurozone mount and has said it will not tolerate further bail-out creep or fiscal union by stealth.

“We have to face openly the possibility of a euro-break up,” said Erkki Tuomioja, the country’s veteran foreign minister and a member of the Social Democratic Party, one of six that make up the country’s coalition government.

“It is not something that anybody — even the True Finns [eurosceptic party] — are advocating in Finland, let alone the government. But we have to be prepared,” he told The Daily Telegraph.

“Our officials, like everybody else and like every general staff, have some sort of operational plan for any eventuality.”

Mr Tuomioja’s intervention is the bluntest warning to date by a senior eurozone minister. As he discussed the crisis, the minister had a copy of the Economist on his desk. It had a picture of Angela Merkel, the German Chancellor, reading a fictitious report entitled “How to break up the euro”, with a caption: “Tempted, Angela?”

“This is what people are thinking about everywhere,” said Mr Tuomioja. “But there is a consensus that a eurozone break-up would cost more in the short-run or medium-run than managing the crisis.

“But let me add that the break-up of the euro does not mean the end of the European Union. It could make the EU function better,” he said, describing the dash for monetary union in the 1990s as a vaulting political leap in defiance of economic gravity. Finland has emerged as the toughest member of the eurozone’s creditor bloc as it tries to hold together a motley coalition. It has insisted on collateral from both Greece and Spain in exchange for rescue loans.

The coalition government is on thin ice as voters peel away to eurosceptic parties. The True Finns shattered the political order in last year’s election with 19pc support. “Taxpayers here are extremely angry,” said Timo Soini, the True Finn leader.

“There are no rules on how to leave the euro but it is only a matter of time. Either the south or the north will break away because this currency straitjacket is causing misery for millions and destroying Europe’s future.

“It is a total catastrophe. We are going to run out of money the way we are going. But nobody in Europe wants to be first to get out of the euro and take all the blame,” he said.

Like other member states, Finland has a veto that could be used to block any new bail-out measures. However, unlike some states, its parliament would have to approve each future measure of the eurozone rescue, including a full bail-out of Spain.

The issue of euro break-up may come to a head in October as EU-IMF Troika inspectors report back on Greek bail-out compliance. Pleas from Athens for two extra years to stretch out its austerity regime have run into fierce resistance from creditor powers.

“It is up to Greeks whether they want to stay in the euro,” said Mr Tuomioja. “We cannot force Greece out. We can cut off lending and that would lead to a default. Then we could speculate whether that would entail getting out of the euro. Nobody knows if it could be contained,” he said. Mr Tuomioja said Finland would block attempts to strip the European Stability Mechanism (ESM) or bail-out fund of its senior status at the top of the credit ladder, a move that could greatly complicate efforts to lure investors back into Spanish and Italian bonds. “The ESM loans have priority. That is a red line for us. We are very concerned that the rules of the ESM seem to be changing.”

He voiced deep suspicion of plans by a “gang of four” EU insiders — including the European Central Bank’s Mario Draghi — to ensnare member states into some form of fiscal union. “I don’t trust these people,” he said.

Mr Draghi said two weeks ago that the issue of seniority would be “addressed” as part of his twin-pronged plan for the ECB and ESM to buy bonds in concert. A number of EU leaders and officials claimed there had been a deal on the ESM’s seniority status at an EU summit in late June. Finland, Holland, and Germany all deny this.

The warnings on the ESM were echoed by Miapetra Kumpula-Natri, chairman of the Finnish parliament’s Grand Committee on Europe, who said bail-out fatigue is nearing its limit.

“Our law passed this summer says the ESM has the same priority as the IMF. There was a clear understanding on this. Any change would require a new law passed by the whole parliament, and this would be very difficult because the risks would be much higher.”

The issue of EU senior status has become an extremely sensitive one for markets after the ECB and EU creditors refused to share losses from Greece’s debt restructuring, in which pension funds, insurers, and banks lost 75pc.

Critics say the Greek deal set a fatal precedent, triggering further capital flight from Spain and Italy.

Mrs Kumpula-Natri said Finland can be pushed only so far. “There is a feeling on the street that there has to be a limit. I can’t say whether it is 10pc of GDP, or what. It’s not written. But it is obvious that a small country can’t help big countries eternally.”

$15 Trillion To Be Added To Money Supply & Gold To Ascend

KWN has been getting bombarded from readers around the world on the Michael Pento piece titled, “This Major Fed Move Is About To Cause Gold To Skyrocket.”   Today we followed up with Michael Pento because there was such tremendous interest in knowing more about this major move he expects from the Fed.  Today Pento told King World News that this move he is predicting could add a staggering $15 trillion to the money supply. 

Pento, of Pento Portfolio Strategies, also said that if this move happens, “you will see the gold market fly far past its nominal record high in extremely short order.”  Here is what Pento had to say:  “So let me put it together for your listeners.  We have $1.42 trillion of excess reserves.  We are now going to be told that there will be no capital reserve requirements on owning sovereign debt.  You will have commercial banks flooding the market with the purchase of sovereign debt.  Not just US debt, Portuguese debt, Spanish debt, Greek debt, all of that debt will have zero capital requirements.”

“Let me be clear on this, I’m not saying it could increase M2 money supply to $15 trillion, this could increase it by $15 trillion.  So we’re talking perhaps about $24 trillion.  It has the potential to increase to rapidly increase the global money supply, and it would be a tremendous boost to commodities, oil and precious metals. 

However, I would add that it will only vastly exacerbate the stagflationary environment that we see gripping the entire developed world....

“It’s much worse than a QE3 because QE1 and QE2, because the vast majority of that money created is sitting with the central bank, it’s laying fallow at the central bank.  But if you have a mechanism like I just described, no longer having sovereign debt have any capital reserve requirements, the notion to stop paying interest on these excess reserves, you will have all of that money that was laying fallow, flood into the economy at once.

So there is no easy answer.  Bernanke doesn’t know what he’s doing.  He spent too much time studying the Great Depression.  He’s going to get a chance to study one firsthand in my opinion. 

What he needs to do is let the free market work, and I can tell you that unleashing $1.5 trillion into the American economy, and having that money roll-over and multiply (to $15 trillion), through the money-multiplier-effect, is not a very good idea.”

Pento also added: “I am a big advocate of hard money policies around the world, and I love gold.  However, I am not a broken clock.  If gold was going to go into a bear market, I’d be the first one to tell you.  I have been on the record, on King World News, telling people when I thought gold was overbought.

I’ve been on record telling people that we’re in this cyclical period of truncated deflation, but if they do the two things I just described in this interview, which is to implement the Basel III Accord, and cease paying interest on excess reserves, you will see the gold market fly far past its nominal record high in extremely short order.”

Turk - Frightening Situation, The World Is On A Knife’s Edge

With continued volatility in global markets, today King World News interviewed James Turk out of Europe. Turk told KWN, “The world is on a knife’s edge.”  He also stated, “Monetary history shows that currencies under political control are always destroyed -- always.  And the dire result is economic chaos.”  Here is what Turk had to say about what he termed the, “frightening situation”:  “Europe had its big meeting last week, and one conclusion is clear, Eric, Europe still has to learn that bailouts are not a solution.  When a government or a bank, or any borrower for that matter, has too much debt -- more debt than they can handle -- adding more debt just worsens the problem.  This ultimately has the effect of making the inevitable bust that much more difficult when it eventually arrives.”

“There are other serious problems here as well.  For example, there are several countries in Europe, of which Germany is the largest, that want to pursue a monetary policy in which the euro maintains its purchasing power.  They want to make sure the currency is not debased by inflation or other bad monetary steps, such as the ECB purchasing debt/bonds of countries, to enable those countries to fund their operating expenses.

In other words, this group of countries wants the euro to be managed like the deutsche mark was managed, which, after all, is what the rules of the eurozone provide.  But these rules are being broken left and right, with the result being that the euro is just like all of the other fiat currencies around the world -- completely at the mercy of politicians, and that is a frightening situation....

“Monetary history shows that currencies under political control are always destroyed -- always.  And the dire result is economic chaos, which is then followed by political chaos and the opportunity for a demagogue to rise to power by promising order.  Given its history, is it any wonder that thinking Europeans do not want to go down that path?

But it is clear that the central planners are now in charge in Europe, Eric. It is a dangerous road for Europe to take.  I keep going back to one of my favorite Margaret Thatcher quotes:  ‘The problem with socialism is that you eventually run out of other people's money.’  Europe ran out of money long ago.  Sadly, this reality is still being ignored in Europe, and for that matter, in every socialist country, which today is just about everywhere in the world.”

Turk also added: “The precious metal markets feel just like the summer of 2010.  In fact, this weekend I spent some time going through the KWN archives and listening to my interviews from that time period (2010).  It was eery, because just about everything I was saying back then also applies to our present situation, particularly sentiment being at rock bottom.

We had big rallies in both gold and silver starting in the summer of 2010.  These are the rallies that took gold over $1900 and silver to $50.  Last week's big move should mean that massive rallies are starting again, and because the banking and economic situation is so much worse today, on this new rally, gold and silver are going to break their old highs.

The world is on a knife’s edge, Eric.  The geopolitical situation is worrying.  Economic activity around the world is rapidly deteriorating, and this is having the effect of putting more and more people out of work.  It is noteworthy that the eurozone jobless rate, in May, hit a record-high of 11.1%.  If we then factor bank runs into this toxic brew, the opportunity for the fear event I have been worrying about seems all the more likely.

As that fear event begins to manifest itself, physical gold and silver will be your best safe-haven.  It is extremely important that KWN readers, around the world, position themselves into the metals ahead of the coming chaos.”

Embry: We’re On The Edge of Collapse, We’ve Run Out of Time

Today John Embry told King World News, when referring to what is needed to bail out Europe, “All I know is that these numbers are staggering ... We are on the edge of collapse. We’ve run out of time.” Embry, who is Chief Investment Strategist of the $10 billion strong Sprott Asset Management, also told KWN that if the euro does split apart, it “will be extraordinarily chaotic.” Here is what Embry had to say about the crisis: “We’ve got to focus on what’s coming up in the short-run with regards to the European situation. It’s going to be an extremely interesting summit they are hosting this Thursday and Friday. The problems are piling up at such an enormous rate they can’t be ignored anymore.”

John Embry continues:

“There was this amazing back and forth today, where Merkel said, ‘There would not be euro bonds as as long as she was alive.’ Then, not longer after, Monti, the Prime Minister of Italy, came out and said that if there weren’t euro bonds, he was going to resign.

So this is turning into a comedy, even though it’s a tragedy....

“The only way this can be dealt with, in the short-run, is by enormous monetary creation. If Merkel and the Germans want to block that because they don’t want to give the ECB that power, the euro is going to split apart and that will be extraordinarily chaotic.

If the euro doesn’t split apart and they do create the money, it will ultimately be very inflationary. So the Germans are caught between a rock and a hard place. You’ve got to remember that the Germans have seen their currency destroyed twice in the last century. The know full well that if you go too far down this path, you are headed towards hyperinflation. They have been there.

I think the money will be created. I was very intrigued by Don Coxe’s fantastic interview with you earlier today. He outlined the degree to which the European banking system is impaired. He used the number $2 trillion. To me, once you get into those numbers, it’s open-ended.

All I know is that these numbers are staggering. It wasn’t even that long ago that one trillion was a number that we couldn’t even fathom. Now they throw it around as though we’ll just print it up tomorrow.

For what it’s worth, if the euro were to break-up and the Germans were to introduce their own currency, that currency would go to the moon relative to most of the others. This would make them uncompetitive in many ways. The Germans have a lot on the line here, so I think they print.

In the very short-run, if they create enormous amounts of money, it could buoy markets a bit, but it doesn’t solve anything. The fact is the system needs unlimited liquidity just to keep floating all of the boats.”

Embry also warned: “We are on the edge of collapse, it’s imminent. We’ve run out of time. If they don’t take action, continue to play this brinksmanship, and this thing gets away on the downside, when you get a hard deflation going, it’s really difficult to reverse.

I don‘t think you can say anything with total assurance, for the simple reason that we have never, ever been remotely in a condition like this in all of world history. So the only things that I am comfortable in at this moment are physical gold and silver and gold and silver shares.”

Germany rebuffs Obama's advice on euro crisis

BERLIN (AP) -- Germany's finance minister is rejecting U.S. President Barack Obama's calls on Europe to move faster in fighting its debt crisis, telling him to get the American deficit under control instead.

Wolfgang Schaeuble told public broadcaster ZDF in an interview late Sunday that "people are always very quick at giving others advice."

He says: "Mr. Obama should first of all take care of reducing the American deficit, which is higher than in the eurozone."

Obama and other leaders fear an escalating crisis in Europe could drag down the world economy.

The 17-nation eurozone is struggling to overhaul its institutions and streamline its decision making to restore investors' confidence. The bloc's debt relative to its economic output stands at about 80 percent, while it is about 100 percent in the U.S.

Developing nations should prepare for 'Lehmans moment', says World Bank chief Robert Zoellick

Developing nations must be ready for a severe global financial crisis should the eurozone fail to cope with its current problems and suffer a "Lehmans moment", outgoing World Bank chief Robert Zoellick has said.

By Reuters

Policymakers and investors are nervously awaiting the outcome of this weekend's Greek election, which could empower radical leftists threatening to tear up the terms of a bailout deal and send shockwaves through financial markets.

Developing countries needed to "prepare for the uncertainty coming out of the eurozone and the wider financial markets", Zoellick told the Observer.

"It will be better if they can avoid piling up short-term debts that can come due in volatile periods and look to the fundamentals of future growth - infrastructure and human capital," he said.

The World Bank had been increasing its lending to support Bulgaria's banking system - one of the most exposed to Greece - and acting to prevent a credit crunch in southeast Europe, the paper reported Zoellick as saying.

The bank was also taking unspecified measures to protect countries in north Africa that were vulnerable to Europe's debt crisis and trade finance facilities were being strengthened for francophone west Africa, the newspaper added.

"Uncertainty in markets is now starting to increase costs for developing countries," Zoellick said. "The ripple effects are making everybody's life harder."

In a reference to tensions in the eurozone over Greece's future, Zoellick said: "Europe may be able to muddle through but the risk is rising. There could be a Lehmans moment if things are not properly handled."

The bankruptcy of US bank Lehman Brothers in September 2008 triggered a global financial slump that indebted Western nations are still struggling to recover from.

EU planning for worst-case scenario in case of Greek eurozone exit

By Luke Baker, Reuters

BRUSSELS – European finance officials have discussed as a worst-case scenario limiting the size of withdrawals from ATM machines, imposing border checks and introducing capital controls in at least Greece should Athens decide to leave the euro.

EU officials have told Reuters the ideas are part of a range of contingency plans. They emphasized that the discussions were merely about being prepared for any eventuality rather than planning for something they expect to happen — no one Reuters has spoken to expects Greece to leave the single currency area.

Belgium’s finance minister, Steve Vanackere, said at the end of May that it was a basic function of each eurozone member state to be prepared for problems. These discussions appear to be in that vein.s

But with increased political uncertainty in Greece following the inconclusive election on May 6 and ahead of a second election on June 17, there is now an increased need to have contingencies in place, the EU sources said.

The discussions have taken place in conference calls over the past six weeks, as concerns have grown that a radical-left coalition, SYRIZA, may win the second election, increasing the risk that Greece could renege on its EU/IMF bailout and therefore move closer to abandoning the currency.

No decisions have been taken on the calls, but members of the Eurogroup Working Group, which consists of eurozone deputy finance ministers and heads of treasury departments, have discussed the options in some detail, the sources said.

As well as limiting cash withdrawals and imposing capital controls, they have discussed the possibility of suspending the Schengen agreement, which allows for visa-free travel among 26 countries, including most of the European Union.

“Contingency planning is underway for a scenario under which Greece leaves,” one of the sources, who has been involved in the conference calls, said. “Limited cash withdrawals from ATMs and limited movement of capital have been considered and analyzed.”

Another source confirmed the discussions, including that the suspension of Schengen was among the options raised.

“These are not political discussions, these are discussions among finance experts who need to be prepared for any eventuality,” the second source said. “It is sensible planning, that is all, planning for the worst-case scenario.”

The first official said it was still being examined whether there was a legal basis for such extreme measures.

“The Bank of Greece is not aware of any such plans,” a central bank spokesman in Athens told Reuters when asked about the sources’ comments.

The vast majority of Greeks — some surveys have indicated 75 to 80% — like the euro and want to retain the currency, something Greek politicians are aware of and which may dissuade them from pushing the country too close to the brink.

However, SYRIZA is expected to win or come a strong second on June 17. Alexis Tsipras, the party’s 37-year-old leader, has said he plans to tear up or heavily renegotiate the 130-billion-euro bailout agreed with the EU and IMF. The EU and IMF have said they are not prepared to renegotiate.

If those differences cannot be resolved, the threat of the country leaving or being forced out of the euro will remain, and hence the need for contingencies to be in place.

Switzerland said last month it was considering introducing capital controls if the euro falls apart.
In a conference call on May 21, the Eurogroup Working Group told eurozone member states that they should each have a plan in place if Greece were to leave the currency.

Belgium’s Vanackere said two days after that call that it was a basic function of each euro zone member state to be prepared for any eventuality.

“All the contingency plans (for Greece) come back to the same thing: to be responsible as a government is to foresee even what you hope to avoid,” he told reporters.

“We must insist on efforts to avoid an exit scenario but that doesn’t mean we are not preparing for eventualities.”

Drop dead euro

How do the Spaniards and the Germans see the future of the eurozone? Will Greece become Europe’s Lehman Brothers? And how viable is the idea of creating a banking union? CrossTalking with Rodney Shakespeare, Stephen Foley and Joost Van Iersel.
 

Nigel Farage - Europe is Collapsing, Buy Gold & Expect QE

On the heels of Fed Chairman Bernanke’s comments, Spain being downgraded and key meetings taking place in Europe, today King World News interviewed MEP (Member European Parliament) Nigel Farage, to get his take on the ongoing crisis.  Farage told KWN that “when I look into the eyes of the leaders of Europe ... what I’m seeing now is madness, absolute, total and utter madness.” 

Farage also discussed the action in the gold market, but first, here is what Farage had to say about the deteriorating situation in Europe:  “Of course, over the last couple of years we’ve had two bailouts of Greece, a bailout of Ireland, Portugal.  We’re now on the verge of needing a bailout in Cyprus, but perhaps more significantly, a bailout in Spain.”
     
“There is all sorts of twisting and turning going on with the Spanish saying, ‘Please save our banks, but don’t put us under the austerity measures that you’ve put the other countries under.’

If one looks globally, we’ve got people like David Cameron, and importantly, President Obama, who are basically saying, ‘The euro project must be saved.  It must be saved at all costs.’ ....

“For that to happen the Eurozone has to turn into a state, and a state that effectively has a Fed.

The Germans are saying, “Hang on guys, we don’t really want to take on the debt for the whole of ‘Club Mediterranean’ countries.”  There’s been a meeting in Berlin today, and Angela Merkel has, for the first time, said that she’s prepared to countenance this becoming a full fiscal and political union, but it has to be constructed on German terms.

So it would appear that despite the fact that the eurozone is a disaster, despite the fact that nobody is prepared to recognize just what a mess our banks are in, despite all of this, our political classes in Europe and America are prepared to continue this project of total failure. 

If we continue with this route, we are heading for money printing on a scale that has never been seen before in the history of mankind.  Clearly, as history teaches us, that will lead to massive inflation, and huge asset depreciation.”

Farage also added:  “All I can tell you is when I look into the eyes of the leaders of Europe, and as a leader of a group in the European Parliament I do get eyeball to eyeball with them, when I look into the eyes of these people, frankly what I’m seeing now is madness, absolute, total and utter madness.

The project, the idea is what must be protected and to hell with the consequences.  I really believe that when we look back in decades or centuries to come, we will see what is happening now in the eurozone as something of huge historical significance.

People will say to themselves in classrooms, in a couple of hundred years time, ‘How could they have been so stupid?’”

Farage also had this to say regarding gold:  “I think we are at that level where people who have waited to add to their gold portfolios should be adding now.  You may well get a situation where if they do pull off some grand deal that gold falls ... but we are now back in the buying zone for gold.

I always felt, and I’ve said for some months on your show, that I thought gold would come back (down), and indeed it has.  I think investors that are scared of what may happen to paper money, you’d have to be very complacent not to be, we are in a buying territory for gold now in my view.”

This is an incredibly important and timely interview with Farage. The KWN interview with Nigel Farage will be available shortly and you can listen to it by CLICKING HERE.

Leaders plotting EU superstate: 'Fiscal union' looms... with the Germans in charge

By James Chapman, Political Editor

European leaders are edging closer to a federal union in response to the financial crisis engulfing the Continent.

In crisis talks yesterday, Britain and the US joined forces to urge Germany to create a central Brussels body that could assume sovereignty over individual countries’ budgets and fiscal policies.
There is growing frustration in London and Washington at Germany’s reluctance to take steps towards a single economic government and put its vast resources behind the struggling countries in the eurozone.

Their fears were aired yesterday in a conference call between finance ministers from the G7 group of leading nations.

Four EU leaders have been asked to draft proposals for a deeper eurozone fiscal union, to be presented to an EU summit at the end of this month.

Senior Tory MPs are to press David Cameron to hold a referendum on Britain’s future in Europe if the moves go ahead.

They insist the Government must seek a mandate from voters to demand that key powers are repatriated from Brussels to Westminster in exchange for agreeing to treaty changes that would allow eurozone countries to pool sovereignty.

They fear a core eurozone, led by Germany, would be in a powerful position to push whatever policies it wanted affecting the rest of the 27-member EU.

The Prime Minister and Chancellor George Osborne have long argued that a single currency can only work if the eurozone creates an effective fiscal union.

They believe that for any single currency to work, richer areas must pay to support poorer ones.
Britain would stand outside any such arrangement, and Mr Cameron refused to sign a treaty taking more tentative steps towards a fiscal union last year.

But senior Conservatives say such a move would so fundamentally alter the balance of power and daily running of the EU that a referendum would have to be offered to determine whether British voters wanted to remain in Europe’s ‘slow lane’.

Up to ten chairmen of Commons select committees are understood to be preparing to call for a popular vote on Britain’s future place in the EU if a fiscal union goes ahead.

Some believe Britain should leave the EU in such circumstances, while others argue that a demand for a looser relationship with Brussels would be given greater force if endorsed in a referendum.

Conservative MP Bernard Jenkin, chairman of the public administration select committee, said: ‘Clearly the European Union becoming a federation which expressly does not include the UK is a dramatic change in the terms of our relationship with our EU partners.

‘The Government needs to lay its demands on the table so British law and British taxpayers’ money are both protected by a sovereign UK Parliament.

‘Any new arrangements should be subject to a referendum.’

The Coalition has changed the law to ensure that no more powers can be passed from Westminster to Brussels without a referendum. But it is far from clear that one would be triggered if the eurozone countries decide to pool sovereignty.

German Chancellor Angela Merkel confirmed this week that measures to create a closer union for countries in the euro were being considered.

‘The world wants to know how we see the political union in complement to the currency union,’ she said.

‘That requires an answer in the foreseeable future and Germany will be a very constructive partner.’

Berlin does not expect to take final decisions on strengthening economic policy coordination until March 2013, with only a ‘roadmap’ being agreed at the Brussels summit this month.