France behind secret plan for breakaway euro zone

The creation of a formal "union within a union" would undermine the European Union and lead to a significant deterioration in Britain's influence in Europe.

British Prime Minister David Cameron is working on plans to stop Britain being "railroaded" into agreeing to decisions taken by the new euro zone bloc.

London's Daily Telegraph understands that France and Germany want to strengthen the union between euro zone countries with new taxes and legal measures to stop nations borrowing and spending too much.

Weaker countries such as Greece could even be barred from the new euro zone, under radical suggestions from some of those involved in talks about the plan.

It comes amid growing concerns that France could be the next nation to become embroiled in the single currency crisis.

Gordon Brown, the former British prime minister, said France was "in danger of being picked off by the markets in the coming weeks and months".

Pressure on Italy eased yesterday after it appeared that former EU commissioner Mario Monti would be installed as prime minister by the weekend, while in Greece his fellow technocrat Lucas Papademos emerged as the leader.

Jean-Claude Piris, a former senior EU official, has come out of retirement to "help the euro zone in the current crisis" by working on a blueprint for the new union and its separate institutions.

"Willing euro members would conclude an additional treaty compatible with international and EU law," he wrote last week. "This would contain additional obligations for them . . ." The emphasis by Mr Piris on "willing" members and "additional obligations" has stoked rumours, denied in Paris, that Nicolas Sarkozy, the French president, is trying build a smaller euro zone without the highly indebted or bailout countries of Greece, Ireland, Portugal or Italy.

The collapse of the euro area of the 17 member states would cause a crash that would wipe out half of the value of Europe's economy, the president of the European Commission, Jose Manuel Barroso, has warned.