Eurozone rescue plan could be on cards says George Osborne
EUrozone leaders are “inching” towards a wide-ranging plan to deal with the problems facing the single currency, Chancellor George Osborne said last night.
European leaders at the G20 summit in Mexico looked to be on the verge of agreeing the first step towards banking union after the German government, which has been under huge pressure to act more decisively, appeared ready to give way over the European Central Bank issuing bonds.
No details of a possible scheme were available but it is thought eurozone countries are considering using injections of funds through the European Central Bank or the single currency bail-out mechanisms to shore up weaker countries like Greece and Spain.
The resources would be designed to spread the risk of debt between the 17-nation euro bloc, and reduce the high interest rates on government bonds which have made it difficult for Athens, Madrid and Rome to service their debts.
The G20 leaders are also attempting to put together a package for world economic growth, although most of their focus remained on the euro crisis.
Speaking at the summit in Los Cabos, Mr Osborne warned that “no single summit will resolve the crisis”.
But he joined counterparts from America, Japan and the emerging economies in piling pressure on Germany to pump more money into the weaker economies in the eurozone.
The Chancellor indicated that he expects steps to be announced either after a meeting of eurozone leaders in Rome at the end of this week or at the full European Council in Brussels next week.
Mr Osborne said: “Basically, we do need to see the richer countries, like Germany like Holland, spend some of their resource in propping up the weaker countries of the eurozone.
“Obviously it is difficult for them to do that, it is not a popular thing to do but it is absolutely necessary.
“I think there are signs that the eurozone are moving towards richer countries standing behind their banks and standing behind the weaker countries.
“It’s a reminder of why we are not in the euro, because I think British taxpayers would find these things difficult to stomach. But British taxpayers need to see the eurozone sort their act out if we are going to get sustainable growth and jobs.”
However, last night Mr Osborne’s predecessor, former Labour Chancellor Alistair Darling, questioned hopes the deal may solve the crisis saying world leaders needed to have arrived knowing what they intended to do.
But he said: “In this case there patently isn’t a plan.”
Mr Darling insisted that, for the crisis to be resolved, more money needed to be pumped into Greece while the bad debt in European banks also had to be sorted out, particularly in Spain.
He added: “There also needs to be a change in strategy because the austerity that is being pursued in Europe isn’t working and is stalling growth.”
At the summit, French President Francois Hollande said he and German Chancellor Angela Merkel, central players in a crisis that has run for more than two years, were both aware that the eurozone is responsible for providing the solutions.
Mr Hollande has been pushing for less austerity and more spending to promote growth in direct opposition to the policy pursued by Mrs Merkel.
“Mrs Merkel and I know that Europe must have its own response,” he said on the sidelines of the summit. “It must not be given to us from the outside.
“The IMF [International Monetary Fund] is not there to backstop the eurozone even if it has done so for some countries, as we saw in Greece.”
The dangers that Europe’s escalating debt crisis would drive the global economy back into recession for the second time in less than four years dominated Monday’s sessions among the G20 leaders of industrialised and developing nations, representing over 80 percent of world output.
There was also pressure from the USA which fears the EU contagion could spread across the Atlantic.
Diplomats said US President Barack Obama carefully spelled out to fellow leaders the interlinked nature of the global economy, with each region heavily dependent on demand from the European Union, the world’s largest economic bloc, for their exports.
A draft communique showed the G20 leaders were poised to pledge that they would “act together to strengthen recovery and address financial market tensions”.
It also said eurozone members would take “all necessary policy measures to safeguard the integrity and stability of the area, improve the functioning of financial markets and break the feedback loop between sovereigns and banks”.
Meanwhile a row broke out between the French government and Mr Cameron after he promised to “roll out the red carpet” for French firms if President Hollande follows through on his plan to raise taxes for the wealthy to 65 per cent.
Mr Cameron, who had a frosty relationship with Mr Hollande’s predecessor, Nicolas Sarkozy, made the jibe at a meeting with business leaders on Monday, drawing a cool response from the president’s entourage.
French MP Claude Bartolone said those French that did move to London to benefit from lower tax rates always ended up returning to France for medical care and to school their children because public services “no longer exist” in Britain.
France’s European affairs minister, Bernard Cazeneuve, dismissed the comments as misplaced “British humour”.
Mr Hollande refused to be drawn into the row, telling reporters in Los Cabos that Europe must show unity at a time of crisis, before adding: “We’re always happy to put our fiscal policies up for comparison.”
The tax row highlights the difference in approach between the socialist Mr Hollande and the Westminster coalition which cut Britain’s top tax rate to 45 per cent from 50 per cent this year, saying it was raising little in the way of revenue and acting as a barrier to enterprise.
Mr Cameron criticised Mr Hollande’s tax-and-spend approach at the meeting on Monday, in particular the wealth tax, a symbolic measure that would affect only about 3,000 French and make a modest contribution to reducing France’s deficit.
In comments confirmed by Downing Street, Mr Cameron said he would “roll out the red carpet” and “welcome more French businesses to Britain” if the new levy on millionaires went through. He said that by paying British taxes, French firms could help “pay for our health service and schools and everything else”.
The British and French have clashed repeatedly on financial policy issues in recent years, including a high-profile row over new European budget rules at a summit last year, when Mr Sarkozy famously told Mr Cameron he had “missed a great opportunity to shut his mouth.”
Not all the French officials in Los Cabos took Mr Cameron’s remarks seriously, with labour minister Michel Sapin joking: “Frankly, I don’t understand how you can unfurl a red carpet across the Channel. It could get quite wet.”
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