Downing Street insisted that Gordon Brown had no regrets "at all" over intervening to hasten Lloyds' takeover of HBOS as the embattled banking group endured another turbulent day on the stock market.
Amid growing alarm over the financial health of Lloyds, its shares initially tumbled by as much as 20 per cent. After a brief recovery, it was still 8 per cent down on the day's trading.
The markets have taken fright over warnings that HBOS, which was finally taken over by Lloyds last month, was on course to lose £10bn.
Plans for the merger were championed by the Prime Minister as HBOS teetered on the brink of collapse last autumn. Mr Brown's official spokesman said that he had acted in the "wider interests of the stability of the UK financial system".
He added: "I think you have to ask yourself what the alternative would have been had Lloyds not taken over HBOS at the time.
"It would have been almost certainly that HBOS would have found it very difficult to continue. That would have meant the Government and the taxpayer intervening to support the totality of HBOS."
Last night Whitehall sources expressed relief that the most dire predictions of a meltdown in Lloyds' share values had not materialised.
They said the Treasury was not ruling out a second cash injection into the embattled banking group but stressed that ministers were anxious to avoid the step. Nationalisation is being regarded as the last resort.
George Osborne, the shadow Chancellor, said: "For the Prime Minister to say he has no regrets just shows how remote from reality he has become. What the British people want is some humility from their Prime Minister, some recognition he has made mistakes and the leadership that is so currently lacking."
Mr Brown will this week attempt to inject some fresh impetus in his drive to win international support for his blueprint for tackling the global downturn.
He will meet Robert Zoellick, the president of the World Bank, and Dominique Strauss-Kahn, the managing director of the International Monetary Fund, in London tomorrow.
He will fly to Rome on Thursday for talks with the Italian Prime Minister Silvio Berlusconi ahead of a meeting of European Union leaders on Sunday.
*Downing Street ridiculed as fiction a claim yesterday that Mr Brown could step down to head a new global financial watchdog. According to the report, he is being championed for a yet-to-be-created post by Angela Merkel, the German Chancellor.Reuse content