UK stays out, but Greek tragedy is dangerous

If Greece defaults on its debts, the world will be in for real trouble, says Sean O'Grady

Government ministers are anxious to stress that the UK has not been asked – and nor would it agree – to contribute directly to any new bail-out for Greece.

The Foreign Secretary, William Hague, said: "Our view is that any such support for Greece is for the eurozone and for the IMF, not the UK." Chancellor George Osborne made clear at a meeting of EU finance ministers in Luxembourg that the UK does not want to be part of any new aid package.

However, this pledge only refers to a new rescue; a "successor deal" to the €110bn disbursed in May last year. It does not affect the UK's commitment to lend to Greece under the terms of that older deal, agreed by the last Labour chancellor, Alistair Darling, under crisis conditions. Britain is also lending funds to the two other distressed peripheral economies of Ireland and Portugal. These UK commitments arise from two indirect mechanisms.

First, the UK is a member of a relatively small (€60bn) fund called the European Financial Stability Mechanism. This is designed to help all EU members, not just those in the euro, in case of financial or natural disasters. Before the formation of the current European Financial Stability Fund – which involves the 17 members of the euro only – the EFSM was tapped to help in the Greek rescue and it again chipped in to the Portuguese and Irish rescues.

The UK also has an obligation to rescue Greece via our IMF membership, just as with other nations. With Greece, as with the others, the UK is liable for 4.5 per cent of loans.

Much more significant – for the UK and the wider world – is the damage that could reverberate throughout the financial system if Greece was to default on its debts.