UK 'should not join Greek bail-out'

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Indy Politics

A fresh financial bail-out for Greece should only involve countries which have joined the single currency, Government officials said today.

The UK was not involved in the original bail-out for Greece last year, which was funded via bilateral loans within the single currency area.

Germany and France have already signalled there is no reason for London to pay a share of any repeat bail-out in the face of a worsening Greek economic crisis.

And ahead of talks between EU finance ministers Prime Minister David Cameron's official spokesman said: "I don't want to speculate on what might happen.

"There is no proposition on the table on this and we are not part of those arrangements, those bilateral arrangements."

In Brussels a Government official commented: "The UK is of the view that the Greek problem is to do with the eurozone. The original problem was resolved with bilateral loans, put together for Greece last May and it is appropriate that only those involved in the original bail-out should be involved - the UK will not be involved."

There was a "theoretical risk", he said, that if a second bail-out package were agreed, some may want to use a bail-out fund set up after the Greek crisis last year, which involves contributions from all EU countries.

But he added: "We do not get the benefits of the euro, as we are not members, so we should not be involved (in a bail-out)."

EU eurozone finance ministers are due to agree next week on the latest payment from the 110 billion euro (£96.5 billion) Greek bail-out approved in May last year. And they are also under pressure to settle the terms of a second bail-out, following the failure of existing Greek austerity measures to revive the economy and close the Greek national deficit gap.

Chancellor George Osborne will be attending the talks in Luxembourg, but he will expect Germany and France to stick to their public acknowledgement that the issue does not involve the UK.

On the eve of the talks, Greek Prime Minister George Papandreou today reshuffled his cabinet and tried to calm public opposition to further austerity measures which he must push through his Parliament as the price of any further bail-out involving the eurozone countries and the International Monetary Fund.

The stumbling block is a clash between Germany and France, with German Chancellor Angela Merkel insisting that any repeat bail-out must involve private bondholders taking a share of the financial risk of propping up the Greek economy.

France, backed by the European Central Bank, says that would amount to a "selective default" by Greece - with dire consequences for market speculation about the longer-term consequences for the credibility of the euro currency.

European's economic affairs commissioner Olli Rehn has warned there must be decisions at a meeting of EU finance ministers on July 11, if not earlier - and in the meantime Mr Papandreou, if he holds on to power, must deliver Greek Parliament agreement on further austerity measures.

This afternoon European Commission President Jose Manuel Barroso urged Greece to play its part in creating conditions for another bail-out:

"I hope the new Greek government can be approved rapidly so that the process for continuation of financial assistance to Greece may continue smoothly.

"I look to eurozone ministers on Sunday to resolve remaining differences and come to a responsible agreement on financial assistance to Greece.

"Greece must also do its part. I am confident that leaders in Greece and in Europe will rise to the challenge and act with responsibility."

Raoul Ruparel of Open Europe said: "Since the bailout fund for which the UK is partly liable is activated by a majority vote, the Government could in theory be outvoted and forced to take part in a second Greek bailout.

"However, another bailout will only increase the cost of an inevitable Greek default, transferring more of the ultimate risk from private investors to taxpayers.

"Better then to plan for a full, orderly restructuring which would deal with Greece's massive debt burden. This is what the UK should be pushing for."