Europe’s running out of time, warns Osborne

Fears that the world could be standing on the brink of another credit crunch were heightened when Mr Osborne’s warning came as the US Treasury Secretary Tim Geithner joined European talks.

The presence of Mr Geithner was an indication that international pressure is growing on the eurozone to sort out its financial problems.

Despite the international concerns, eurozone finance ministers delayed their decision on whether to give more loans to debt-striken Greece until October.

Although the UK is not involved in any bail-out aid for Greece, Mr Osborne said there was “no relish at all” from the problems facing the eurozone saying: “Let’s have no schadenfreude. A successful euro is massively in Britain’s national interests”.

He acknowledged that the UK itself was not immune from the global economic downturn, but said the country was well-placed to “weather this storm”.

Yesterday’s delay came because ministers want to see tougher efforts in Greece to revive the economy, following weeks of tension in which officials from the European Commission, the European Central Bank and the International Monetary Fund have voiced frustration at what they say is a lack of urgency in implementing public sector job cuts, tax rises and other moves to cut massive debt.

Failure to agree soon on more aid will trigger Greek bankruptcy, but Athens is still expected to be granted more money at further talks early next month – as long as debt-tackling policies are brought in as planned.

The hope is that speculators will resist writing off the euro in the meantime and give recovery a chance.

In a speech to business leaders, Mr Osborne echoed a warning from former chancellor Ken Clarke that US and European leaders were guilty of “paralysis”.

There was a “lack of belief in the ability of political systems in the eurozone and in North America to respond” that was worsening the crisis, the Chancellor said.

“Time is short and the eurozone must now implement as quickly as possible their 21 July agreement, resolve the uncertainty with respect to Greece, specify how they intend to fulfil the commitment made at last week’s G7 meeting to take all necessary actions to ensure the resilience of banking systems and financial markets.

“Crucially, my European colleagues need to accept the remorseless logic of monetary union that leads from a single currency to greater fiscal integration,” he told a Festival of Business in Manchester.Mr Osborne said decisive action by the government had put the UK “ahead of the curve”.

He continued: “Our plan was designed for both good times and tough times. Flexible enough to let the automatic stabilisers work. Strong enough to command the confidence of world markets. If we abandoned it now there would be a collapse in that confidence and a surge in interest rates.”

The Chancellor said the government is “working flat out to help your businesses not only survive but thrive”. Particular emphasis would be put in the coming months on support for mid-sized firms who had been overlooked in the UK for many years. Between them they employ millions of people and turn over billions of pounds but they do not always get the same focus as the smallest or the largest, he said.

“I think the time has come to fill that gap – starting today,” Mr Osborne said, adding that he would draw inspiration from the successful German model.

Meanwhile, Mr Geithner warned European leaders to stop the “loose talk” about divisions over how to solve the eurozone debt crisis. Speaking at a closed meeting of eurozone finance ministers in Poland, he is reported to have told them that the divisions were “very damaging”.

Reports last night suggested that some eurozone ministers seemed unhappy with Mr Geithner’s comments.

Mr Geithner said: “What’s very damaging is not just seeing the divisiveness in the debate over strategy in Europe but the ongoing conflict between countries and the [European] central bank.”

He said that “governments and central banks need to take out the catastrophic risk to markets”.