London mayor says greater euro fiscal union "crazy"

LONDON Tue Oct 18, 2011 8:56pm BST

London Mayor Boris Johnson speaks on the third day of the Conservative Party Conference in Manchester, October 4, 2011. REUTERS/Suzanne Plunkett

London Mayor Boris Johnson speaks on the third day of the Conservative Party Conference in Manchester, October 4, 2011.

Credit: Reuters/Suzanne Plunkett

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LONDON (Reuters) - Calls for greater fiscal union to fix the euro zone financial crisis are crazy, London's Mayor Boris Johnson said on Tuesday, contradicting the government's official line, showing a widening rift within the Conservative party.

The intervention by the Conservative mayor distances him from the party leadership, which has joined others in saying the answer to the single currency area's debt problems is some form of coordinated management of national budgets and taxes.

But his comments will endear him to right-wing Conservatives looking for a new rallying point after the resignation of eurosceptic Defence Minister Liam Fox and frustrated with the government's failure to get tough on Europe.

"I think it is absolutely crazy at the moment deciding that the solution to the euro crisis is to intensify fiscal union and try to create an economic government of Europe," Johnson told reporters at a lunch in parliament.

Johnson is seen as a potential successor to Prime Minister David Cameron, who remains secure in his position but has upset his party's right wing by failing to deliver a referendum on Britain's EU membership after coming to power in coalition with the Liberal Democrats last year.

Johnson's role as head of London's civic administration, as well as overseeing preparations for next year's Olympic Games in the capital, gives him a powerful base from which to launch any challenge to Cameron.

The outspoken mayor, a former MP who enjoys a high profile in Britain as witty speaker and writer, has previously called for indebted Greece to leave the euro.

Britain is a member of the European Union but outside the 17-member euro zone.

Euro zone leaders meet on October 23 to discuss further aid for Greece, with tighter controls on Athens's progress on privatisation and other reforms high on the agenda.

Johnson said the lesson of Britain's ejection in 1992 from the European Exchange Rate Mechanism -- when markets forced a devaluation of sterling -- was that without international confidence any euro zone rescue plan would ultimately fail.

"If people know that the system can dissolve, then obviously they are going to wait for the moment when it does," Johnson said.

"That is the fundamental, inescapable problem that we face in endlessly trying to bail these countries out," he added.

(Editing by Sophie Hares)

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