Osborne warns of Eurozone danger to UK

CHANCELLOR George Osborne has called for an end to the “sticking plaster” approach to the economic crisis engulfing Europe, saying that a “lasting” solution was vital to bring stability.

As the continent’s financial upheaval continued, Osborne urged European leaders yesterday to devise a credible resolution to the debt problem spreading through the region, saying that the ongoing uncertainty posed a “real danger” to the economies of Britain and other nations.

Speaking as he arrived in Brussels for a meeting of all 27 EU finance ministers, Osborne stressed that a comprehensive deal would be the biggest boost for the British economy this autumn.

Ministers later reached a “provisional” agreement on new rules that will force banks to raise £87 billion to ensure they have enough reserves to weather further losses on their Greek debt holdings and market turmoil.

Osborne said: “What we’re going to be arguing for is a comprehensive solution to this crisis. We’ve had enough of short-term measures, sticking plaster that just gets us through the next few weeks.”

He added: “The crisis of the Eurozone is a real danger to all of Europe’s economies, including Britain’s. We need to address the root causes of the problem with a lasting solution that will help all of Europe’s economies.”

Osborne later emerged after ten hours of talks with fellow finance ministers to announce that “real progress” had been made in the battle to beat the economic crisis and restore confidence in the stability of the single currency.

Despite Osborne’s optimism, the top bank lobbyist leading the negotiations for the banks last night said banks and the Eurozone are far from reaching a deal to cut Greece’s debt.

Charles Dallara, the managing director of the Institute of International Finance, said: “We’re nowhere near a deal.”

The finance meeting yesterday followed an agreement that banks should accept substantially bigger losses on their Greek bonds, with a new report suggesting that writedowns of up to 60 per cent may be necessary.

A hectic series of European Union meetings likely to last until at least the middle of this week began on Friday evening with talks between the 17 finance ministers from nations using the euro.

Amid growing fears that the Greek crisis is even worse than feared, they approved nearly £7bn in bailout aid and, according to Eurozone leader and Luxembourg prime minister Jean-Claude Juncker, paved the way for a massive 50 per cent writedown of Greek debt to ease the country’s burden.

The report, from Greece’s debt inspectors – the European Commission, the European Central Bank and the International Monetary Fund – showed that the country’s economic situation had deteriorated dramatically, even since the summer.

If banks do not take bigger losses, it warned, Greece’s debt would peak at a massive 186 per cent of economic output in 2013, falling to just 152 per cent by the end of 2020. Under the new deal, however, its debts would stand at 110 per cent by 2020.

Despite that provisional agreement to make banks raise £87bn, a report by the IMF has called for up to £175bn to be poured into banks.

The debate yesterday also saw Germany’s foreign minister Guido Westerwelle argue that the EU’s treaty should be changed to allow it and the IMF to directly intervene in the budgets of member states if they are receiving financial aid but failing to meet fiscal targets.

However, his counterparts from Luxembourg and Finland disagreed, reasoning that overhauling the treaty is too big a task to tackle.

Today, Prime Minister David Cameron will fly over to join other EU leaders for a summit, although the talks are unlikely to herald firm agreements over how to shore up the euro and persuade financial markets that the single currency is solid, amid widespread reports of deep divisions between France and Germany.

In particular, the two nations differ over boosting an existing £383bn bailout fund possibly fourfold, to around £1.74 trillion.

A deal had been expected to be signed today, but both countries said they would not be able to reach an agreement and announced leaders would meet again on Wednesday.

Meanwhile, Labour leader Ed Miliband said yesterday that Cameron should demand that all 27 EU member states are present at Wednesday’s meeting, which is scheduled to include only those members from the 17 Eurozone countries. At present, Cameron plans to attend a Commonwealth summit in Australia that day.

Miliband said: “When all the other leading EU nations meet to thrash out a desperately needed deal, we have a prime minister who is going to be on the other side of the world. It is a complete abdication.”