UK’s huge new euro bailout: As rescue talks collapse in chaos, our taxpayers face ANOTHER massive bill to prop up single currency
Efforts to thrash out a rescue deal in chaos after meeting with finance ministers cancelled
Cameron will say a bigger bailout fund is necessary to avoid economic catastrophe
Britain has already forked out around £12billion to bail out Ireland, Greece and Portugal
By Tim Shipman and Hugo Duncan
Last updated at 11:04 PM on 25th October 2011
Britain was facing a new multi-billion-pound bill to prop up the euro last night as the single currency teetered on the brink of collapse.
Efforts by France and Germany to thrash out a rescue deal descended into chaos as a meeting of EU finance ministers scheduled for today was cancelled at the 11th hour because of lack of progress.
More than £18billion was wiped off the value of shares in London in just 20 minutes when EU officials also warned that a separate make-or-break leaders’ summit today in Brussels would also fail to end the crisis.
The International Monetary Fund, to which Britain is a major contributor, made clear it is prepared to step in and boost the eurozone bailout fund.
That would leave British taxpayers to carry the can for those countries in the eurozone which have failed to solve their problems.
George Osborne said IMF funds should not be a substitute for a ‘big bazooka’ deal by those in the single currency to get their own house in order
Tory MPs warned that any attempt to increase Britain’s contribution would trigger a mutiny to make Monday’s rebellion on Europe, in which 81 defied the Prime Minister, look like ‘a children’s tea party’. Chancellor George Osborne has said IMF funds should not be a substitute for a ‘big bazooka’ deal by those in the single currency to get their own house in order.
Britain has already forked out around £12billion to bail out Ireland, Greece and Portugal through the IMF, the EU and in direct loans.
In Downing Street and the Treasury there was fury at the failure of Britain’s European partners to get their act together.
David Cameron will tell the leaders’ summit today that a bigger bailout fund, help for banks and support for Greece is necessary to avoid economic catastrophe.
A senior Whitehall source said yesterday: ‘At some point they need to get around a table and sort this out. There is still quite a lot to do. To say it is a mess would be a good description of where we are.’
To add to the chaos, Silvio Berlusconi’s Italian government had looked to be on the brink of collapse yesterday, after his coalition partners initially refused to make the cuts in spending they had been told were necessary to prevent Europe’s fourth largest economy going belly up.
A deal was eventually struck late last night, although there was scepticism over whether it would be sufficient to stave off further trouble.
British diplomats warned it could take weeks to finalise plans to bolster the firepower of the £383billion eurozone rescue fund to £870billion – the amount experts say is needed to ensure the survival of the single currency if Italy, Greece, Portugal and Ireland default on their debts.
But British taxpayers could be hit indirectly, as eurozone officials indicated that the IMF could host a new fund to extend loans to governments at risk. Britain will have to pay 4.5 per cent of any IMF contribution.
‘The IMF has indicated that they are considering it,’ one eurozone official said. ‘The IMF is a possibility – they could be one of the investors, they could be the host of this fund.’
Talks on the plan are now under way between the eurozone and the IMF’s French chief Christine Lagarde.
Treasury officials said they would fight any IMF involvement if it let Germany, France and the other members of the single currency off the hook. One said: ‘There should be adequate resources for the bailout fund but IMF loans shouldn’t be a substitute for action from the eurozone.’
Tory MP Philip Davies said: ‘It’s totally unacceptable. It’s going to be no good the Government bragging that we’re not contributing to a euro bailout when we are going to be contributing by the back door through the IMF.
‘If George Osborne comes to the Commons to increase Britain’s contribution to the IMF, it will make Monday’s night’s rebellion look like a children’s tea party.
‘We didn’t join the euro because we knew it would be a disaster. There’s no way the British taxpayer should be bailing them out. They should get their own house in order.’
David Cameron is due in Brussels today for a summit of all 27 EU leaders before a meeting of only eurozone leaders, at which an outline solution may be thrashed out.
But the cancellation of the finance ministers’ meeting means there is no prospect at all of completing the detailed number-crunching necessary to calm the markets.
The FTSE 100 index rose as high as 5548 in early trading in London yesterday but crashed as low as 5466 after the finance ministers’ meeting was cancelled.
Nearly 70 points – or around £18billion – was lost in a matter of minutes before the FTSE clawed back some of the rout to close down 22.52 at 5525.54.
Shares across Europe and in the United States were also on the slide.
Will Hedden, a trader at IG Index in London, said the cancellation of the finance ministers’ meeting ‘sent shivers through world markets’.