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UK 'facing growing EU isolation'

Britain is facing growing isolation in the European Union as the eurozone states move to integrate their fiscal and economic policies more closely, a parliamentary report has warned.

The House of Lords EU Economic and Financial Affairs Committee said the eurozone crisis had seen power of euro area institutions such as the European Central Bank (ECB) grow at the expense of those representing all 28 member states.

It warned the Government needed to "redouble" its efforts to convince the eurozone members of the benefits of maintaining the City of London's position as the leading global financial centre for the EU as a whole.

"Moves towards euro area integration leave the UK in an increasingly isolated position," it said.

"In order to ensure the UK's interests are effectively promoted, the Government and the Bank of England should maintain and develop constructive relationships with the increasingly powerful euro area institutions."

While the troubles in the eurozone have eased, the committee said there was still no guarantee that it could withstand another crisis.

Economic growth in the single currency bloc is "anaemic", the imbalances between the rich and poor states are "immense", unemployment levels remain "destructively high" while there are growing fears of "a damaging deflationary spiral".

"While the crisis may have abated, it would be unwise to conclude that the storm has entirely passed. Fundamental weaknesses remain which make the euro area vulnerable to future shocks," it said.

"There is no guarantee that the new arrangements for euro area integration, in their present incomplete state, could withstand a further crisis."

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