By Andrew Osborn
LONDON (Reuters) - Britain told its European Union partners on Wednesday the EU's treaties were "not fit for purpose" and there must be reform or it would quit the bloc.
In the latest blast of euroscepticism from Conservatives in Britain's coalition government, finance minister George Osborne said EU treaties had to be changed to protect member states like his own that don't use the euro.
The comments, made at a conference in London on reform of the 28-nation EU, are unlikely to be embraced by integrationists in Brussels, who want Britain to remain in the bloc but have become irritated by its demands for change.
Jose Manuel Barroso, the president of the European Commission, accused countries like Britain that have questioned the bloc's freedom of movement rules of having a "narrow, chauvinistic idea of the protection" of their interests - an indication of how tough London may find it to win allies.
Osborne, a close ally of Prime Minister David Cameron, said the treaties that governed how the EU was run were "not fit for purpose" and had to be overhauled.
"Proper legal protection for the rights of non-euro members is ... absolutely necessary to preserve the single market and make it possible for Britain to remain in the EU," he said.
"If we cannot protect the collective interests of non-euro zone member states then they will have to choose between joining the euro, which the UK will not do, or leaving the EU."
A drive for closer integration among the 18 countries that use the single currency was straining the EU's institutional architecture, he said, a situation he said risked "going beyond what was legally possible or politically sustainable".
Britain's Conservatives have long been skeptical about European integration. But their rhetoric is becoming stronger as they face a challenge in May's European Parliament elections and beyond from the UK Independence Party, a primarily right-wing group that wants Britain to leave the EU.
Cameron has promised that if he is re-elected in 2015 he will try to renegotiate Britain's EU ties before offering Britons an in/out referendum on membership.
The pledge, made last year, was partly designed to pacify his party's lawmakers whose vocal desire to leave the EU or radically dilute its influence over British life risked tearing the party apart and undermining Cameron.
It was a strategy that worked for a while, but the same eurosceptics have now begun to demand Cameron do more to counter what they see as the EU's pernicious influence.
In comments that looked designed to placate them, Osborne said he and Cameron were determined to make good on their EU promises.
"Our determination is clear: to deliver the reform and then let the people decide," he said.
"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 reeled off a list of EU financial market policies which he said Britain was challenging at the European Court of Justice, saying he was constantly forced to fight off damaging EU regulation of the sector.
IN OR OUT
Many polls have shown a slim majority of Britons - disenchanted with the EU's red tape and what they view as its overbearing intervention in their everyday lives - would vote to leave the EU if given the chance.
Both pro- and anti-EU groups agree any referendum would be close.
The Conservatives have not disclosed all the areas they want to reform, but the general thrust of their demand is that they want Britain and other member states to repatriate powers in policy areas such as immigration and social security.
European Commission Vice-President for Economic and Monetary Affairs Olli Rehn told reporters in Beijing, where he met senior Chinese leaders on Thursday, that he was ready to work with Osborne on EU reform.
"It is very important that the UK is an active partner of the European Union. It is better to focus on reform than repatriation (of powers)," he said.
Osborne, who is presiding over a strong economic recovery in Britain, said the European economy had stalled and was being shown up by economies like China and India.
Calling for economic reform of the EU, he said it would be a "complete betrayal" to stall a possible free trade deal between the EU and the United States, something he said lawmakers in the European Parliament had floated doing.
He said his preference was for Britain to remain in a reformed EU. But he said he agreed with Britain's foreign minister who once said that he wanted the country to be "in Europe but not run by Europe".
(Additional reporting by Michael Martina in BEIJING; Editing by Jeremy Gaunt and Robert Birsel)