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Cameron faces fallout from Tory Eurosceptics

The Europe issue returned to haunt David Cameron yesterday as Conservative MPs attacked a £7bn bailout for Ireland and the right-wing group the Tories formed in the European Parliament was in danger of collapse.

George Osborne struggled to defend the use of UK taxpayers' money as simmering anger among Tory Eurosceptics boiled over. They accused the Government of ceding more powers to the EU and fear the Liberal Democrats are calling the shots.

Meanwhile, there was embarrassment for Mr Cameron as the leader of the right-wing alliance in the Strasbourg Parliament, which includes Tory MEPs, quit his party in Poland because he said it was too extreme.

Michal Kaminski, the leader of the European Conservative and Reformists (ECR) – formed when Mr Cameron snubbed the mainstream centre-right parties of Angela Merkel and Nicolas Sarkozy – said the Tories' main partner, Poland's Law and Justice Party, was "being taken over by the far right".

Senior Tories fear the ECR could break apart if Mr Kaminsky tries to remain its leader. If his former Polish party were to pull out, the group could collapse. Even if it survives, Tory MEPs would be in partnership with a party condemned as extremist by one of its former leaders.

Before the election, Nick Clegg condemned the Tories' allies as "nutters, anti-Semites and homophobes" and the latest controversy has called into question Mr Cameron's decision to pull out of the mainstream European People's Party (EPP). Yet any attempt to rejoin the EPP would anger Eurosceptic Tories, whose hackles have been raised by the Irish bailout.

Eurosceptics are delighted that the euro crisis has put the issue back on the agenda and began to break their silence on it yesterday. They want Ireland to pull out of the single currency and Britain to use the possible collapse of the euro to demand the repatriation of some powers from Brussels – a Tory policy dropped in the Coalition Agreement with the Liberal Democrats.

Mr Osborne told the Commons that Ireland was a "friend in need" and insisted it was "overwhelmingly in Britain's national interest" for a major trading partner with an "interconnected" banking sector to have a stable economy and banking system. In addition, the UK will contribute about 13 per cent of the money from an EU stability fund. The total British contribution is expected to reach about £7bn.

But Douglas Carswell, a Tory Eurosceptic, said: "We should be helping Ireland to quit the euro. At a time of austerity, we are again paying vast sums to the EU." Bill Cash, chairman of the Commons EU Scrutiny Committee, said: "The real issue is the Government saying it will do something about European rules but then acquiescing in another European integration process."