George Osborne warning on euro 'firewall'

Eurozone leaders most show the world that they are prepared to stand behind their currency, Chancellor George Osborne said today.

Arriving in Brussels for a meeting of EU finance ministers, he said that they needed to build a convincing "firewall" to prevent the crisis spreading.

He warned that failure to build on last month's deal to bail out the stricken Greek economy would have a "very damaging effect" on Britain.

"We need to focus on getting a firewall in place. It is all very well saying we have got a firewall, but the eurozone now need to convincingly show the world that the firewall exists and has got sufficient resources in it," he told reporters.

"The eurozone needs to show the world that it can stand behind its currency. We can't just stand and wait on developments in Athens and in Rome. We have also got to make progress here in Brussels.

"If we don't, that will continue to have a very damaging effect on the entire European economy, including the British economy."

The finance ministers will review progress at separate talks last night of the 17 eurozone member states on efforts to implement a promised boost to the EU's economic crisis bailout fund to about 1 trillion euro (£858.6 billion).

The meeting failed to resolve how to leverage the existing fund of 440 billion euro (£377.8 billion) and vowed to come up with plans by the end of November.

Eurozone chairman Jean-Claude Juncker said last night's gathering had been "one step in the process" and said an agreed extra 8 billion euro (£6.9 billion) due to be paid to Greece could not be handed over until a new Greek government is fully installed.

Once a new prime minister is chosen to replace George Papandreou in the wake of last week's political fiasco over a Greek referendum, the new cabinet will have to sign a declaration accepting tough bailout conditions, including even harsher national austerity measures.

Today's meeting of the 27 finance ministers comes as attention turns from Greece to Italy, where Prime Minister Silvio Berlusconi faces a confidence vote later over his country's mounting economic problems.

The fear is that a worsening Italian crisis could dwarf the problems Greece has heaped on the rest of the eurozone.

While Greece represents a fraction of eurozone GDP, Italy is one of the zone's biggest economies and its losses would be impossible to support without a bailout fund way beyond the trillion euros the eurozone states are trying to piece together.

Meanwhile, in Brussels, Mr Osborne will reiterate Britain's opposition to a Europe-wide tax designed to recoup some of the costs of the banking crisis.

The European Commission has proposed a financial transactions tax (FTT) tax for all 27 EU countries - putting the UK on collision with France and Germany over the plan.

Berlin and Paris want the tax on all types of financial investment systems, to demonstrate to taxpayers that governments are trying to ease the bailout burden on the public purse.

But Mr Osborne has warned that the FTT could drive investment out of Europe and threaten the interests of the City of London and could only work if a global deal is struck to ensure a level playing field.

PA