Europe is in danger of falling behind in the global race for economic success, says David Cameron

Europe is in danger of falling behind in the global race for economic success unless it reforms, Prime Minister David Cameron said today.

Mr Cameron was speaking as he arrived for a meeting with anti-federalist party leaders in Brussels ahead of today's European Council summit.

The summit of heads of government from the 27 member states will discuss an interim plan for economic and monetary union within the eurozone, designed to bring an end to the crisis in the single currency.

Speaking to reporters as he arrived in the Belgian capital, Mr Cameron said that the EU needed to cut costs, regulations and bureaucracy and sign trade deals with major markets such as the US and Japan.

He said that, most importantly, it had to complete the European single market to give companies from member states fuller access to the biggest trading bloc in the world.

Mr Cameron, who has said that both the UK and Europe are engaged in a "global race" with emerging economic giants for future prosperity, warned: "There is a danger of the European countries and the European Union falling behind."

Today's summit will receive an interim report drawn up by the presidents of the European Council, European Commission, European Central Bank and Euro Group on the way forward for the single currency.

Proposals involve banking union for the eurozone area, with a single supervisory authority overseeing financial institutions in the 17 countries which use the single currency.

Also under discussion are a separate budget for the eurozone, the pooling of debt between single currency governments and requirements for eurozone countries to agree structural reforms through contractual agreements with Brussels.

The proposals involve significant moves towards pooling the sovereignty of the eurozone nations and discussions are likely to be protracted, with no decisions expected before leaders leave Brussels on Friday afternoon.

One draft conclusion which could be agreed over the next two days is a pledge to achieve a "fully functioning digital Single Market by 2015", which could generate additional growth of 4% by 2020.

The Prime Minister is expected to say that, in addition to establishing a single market for the digital economy, concrete measures are needed to complete other unfinished and potentially lucrative parts of the single market policy, from opening up services to bearing down on unnecessary rules and regulations.

Mr Cameron will continue to endorse closer 17-country eurozone integration as long as the planned measures do not hamper the progress of the 27-nation single market.

But behind the scenes, divisions are deepening within the eurozone on the balance between austerity and growth.

In an interview today in six European newspapers including the Guardian, French president Francois Hollande seemed to widen tensions between Paris and Berlin.

He warned that the Franco-German motor which has traditionally powered the EU could stall because of disputes over how to resolve the euro crisis.

President Hollande challenged German chancellor Angela Merkel to reverse her insistence on strict austerity measures which have been accused of choking off economic growth prospects.

And he attacked the idea that Germany could dictate austerity strategy on the grounds that it was effectively bailing out those in trouble: "We're all taking part in this solidarity ... let's stop thinking that there's only one country who's going to pay for the others. That's false."

He claimed that the EU was "very near" to the end of the eurozone, but warned that decisions taken at the last EU summit in June had to be implemented swiftly.

The French president dismissed German pressure to set up either a "federalised union" or a "political union" in the wake of the crisis and insisted that, while France and Germany remained an "accelerating" force of the EU, "it can also be the brake if it's not in step. Hence the need for Franco-German coherence".

Meanwhile, European Commission president Jose Manuel Barroso said on the eve of the summit that failure to forge a closer union was "nourishing populist debates ultimately to put an end to this project".

Speaking at the European People's Party congress in Bucharest, he said: "It is clear that the euro area needs to evolve to a fiscal union ... and ultimately a political union."

Today's pre-summit meeting of the European Conservatives and Reformists (ECR) party leaders is the first such gathering since the group's formation in 2009.

Mr Cameron held private talks over lunch with Czech prime minister Petr Necas before they went into the full ECR meeting, where they were joined by leaders of parties including Poland's Law and Justice Party and Poland Comes First.

The formation of the grouping in the European Parliament allowed Mr Cameron to fulfil his pledge to break away from the more mainstream pro-federalist centre-right European People's Party, and was branded at the time by Labour as a Tory partnership with "unsavoury allies".

On his arrival at the pre-summit ECR meeting, Mr Cameron said: "As I've been saying, there's a global race taking place and some countries are going to struggle and, frankly, there is a danger of European countries and the EU falling behind.

"So I think what's absolutely vital is that we encourage enterprise, we cut the cost of regulation for business and we do trade deals with some of the biggest economies in the world like America, Japan and fast-growing countries as well.

"And finally, perhaps most importantly, that we look at the greatest asset we've got, which is the single market - the biggest market anywhere in the world. If we complete that market - and it's celebrating its 20th anniversary right now - but it still isn't finished in digital services and energy.

"That's the agenda I'll be pushing at this meeting."

PA