UK gives £4.2bn to Portugal bailout

Pa
Tuesday 17 May 2011 14:25
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An economic bailout package for Portugal approved by EU finance ministers includes a £4.2 billion contribution from Britain.

The £67.75 billion package, subject to strict austerity measures agreed by Lisbon, is the second to commit the UK to financial guarantees which will only be called upon if Portugal defaults on the loans it raises thanks to the EU-IMF combined bailout deal.

The first package - for Ireland - is already coming under fresh scrutiny, with Dublin using talks in Brussels today to argue for cheaper interest rates on its bailout loans.

Meanwhile the first EU bailout package granted to Greece a year ago - with no British involvement - is also under the spotlight amid signs that the bailout system is not pulling the eurozone out of its deepening debt crisis.

Last night finance ministers were warned to abandon "brutal austerity" as the answer to the debt crisis and instead give struggling countries a chance to restore collapsing economies.

An emergency resolution agreed at a conference of trade union leaders in Athens said the drastic measures so far taken in the form of financial bailouts for Greece and Ireland - and now Portugal - in return for severe domestic public spending cuts were plunging the countries further into debt.

As Chancellor George Osborne joined his colleagues for a review of the Irish bailout terms and consideration of a second bailout for Greece, the general secretary of the European Trade Union Confederation, John Monks, told the ETUC Congress in the Greek capital that the EU-IMF arrangements were too tough to give scope for economic growth.

In a letter to the ministers Mr Monks said: "The ETUC calls on you to immediately change course. Brutal austerity, both in terms of public finance and in terms of wages, is not working but is instead undermining the economies of countries such as Greece and Ireland."

Mr Osborne, flying back to London this afternoon, has ruled out any UK involvement in a second Greek bailout, but could not avoid a share of the Portuguese bailout burden, as all EU countries are committed under a 60 billion euro European Financial Stability Mechanism which runs until 2013.

About £3.2 billion of the UK exposure will be covered by the mechanism, with the remaining £1.1 billion coming from the UK's participation in the International Monetary Fund.

IMF chief Dominique Strauss-Kahn should have been at the Brussels talks, but was replaced by a deputy after being arrested in New York in connection with an alleged sex assault in a hotel.

EU finance ministers have joined IMF officials in insisting that the organisation's continuing crucial involvement in the European debt crisis and its resolution is not affected by the absence of Mr Strauss-Kahn, who has been remanded in custody in a New York jail.

But in Athens, concern remains that the absence of the IMF chief from the economic hot seat will put at risk Greek prospects of a successful rethink of its mounting debt problems.

The IMF, which is yet to make a decision over Mr Strauss-Kahn's future, said it remains "fully operational" despite his arrest.

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