Osborne urges euro trauma solution

Britain will not “go out on a limb” in pumping extra cash into the International Monetary Fund to help restore the health of the global economy, Chancellor George Osborne said today as world leaders debated the crisis amid continuing turmoil in Greece.

And he warned a Greek exit from the euro would be “pretty traumatic”, calling on the countries which use the single currency to “face up to their responsibilities” and ensure a solution was found

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The final details of a boost to funds available to the IMF for loans to support countries at risk of economic collapse – likely to mean an increase in the UK’s £29bn (€33.5bn) commitment, are being thrashed out at the G20 summit in Cannes, France.

Although officials have stressed that IMF resources are available to member nations around the world, the Government is likely to face political controversy at home if the first countries to stake a claim on the money are beleaguered eurozone states like Italy or Spain.

Pressed on how much extra the UK might put into the IMF, Mr Osborne said no firm figure had been agreed but complained that media coverage of the issue suggested Britain was acting alone in devoting more money to the potential bailout funds.

Speaking from Cannes, he told BBC Radio 4’s Today programme: “I am not suggesting that Britain should contribute disproportionately, out of kilter with the kind of contributions it has made in the past to supporting the IMF and the international institutions.

“I am not suggesting Britain should go out on a limb. Britain will be acting in concert with other countries around the world.”

The meeting in the Riviera resort has been dominated by efforts to resolve the sovereign debt crisis in the eurozone, with attention focused on dramatic developments in Greece.

Greek prime minister George Papandreou has submitted to intense political pressure from eurozone leaders and senior members of his own party by ditching plans for a referendum and seeking consensus from the opposition on the way forward.

Mr Papandreou will face a confidence vote which could topple his government in Athens today.

But the apparent cancellation of the mooted national ballot eased the task of eurozone leaders in finalising the rescue package agreed last week.

EU leaders have recognised publicly for the first time the possibility of Greece leaving the single currency but Mr Osborne said: “I would not say at the moment it’s likely.”

He went on: “Clearly the rest of the eurozone have said to Greece that if it does not fulfil its part of the bargain then it’s going to be faced with the choice of leaving the euro.

“The eurozone has to face up to its responsibilities, both the individual members of the eurozone and collectively, to stand behind their currency.”

He said: “A Greek exit from the euro would be a pretty traumatic event with all sorts of consequences and frankly some of those consequences are unpredictable at this point.

“I do not think anyone should think of that as the easy option. The better option at the moment is for Greece to implement what it agreed to implement in the deal struck by European leaders.”

The political situation in Greece was “very, very fluid to say the least”, he said.

British Prime Minister David Cameron, who has argued for an increase in IMF resources, called on world leaders gathered at the G20 summit in France today to show the “political will” needed to restore the health of the global economy.

In a report to the summit, Mr Cameron said what was needed was not fundamental reform to international institutions, but willingness to act in a united way.

“We have the machinery that we need already,” he said.

“What we need above all is the most precious and intangible commodity - political will.

“Political will to act together, and to build the consensus we need to confront squarely the problems before us so that we can return our economies to health and vigour.

“Political will to keep tackling poor regulation, barriers to growth and global disparities in wealth.

“That is what our citizens are entitled to expect of us. And that is what we must deliver.”

Mr Cameron’s words came in the foreword to a report on global governance which he drew up at Mr Sarkozy’s request and presented to the G20.

In it, he calls for technical changes to the G20, the Financial Stability Board and the World Trade Organisation to streamline decision-making and stimulate growth.

In a signal that he sees a bigger role for emerging economic giants such as China, the Prime Minister said: “We cannot behave as if the world economy has not changed dramatically over the past 20 years.

“The lesson from the G20 is that advanced and emerging markets need to come together on an equal footing, and provide existing institutions and processes that they work alongside with a clearer political direction on what needs to be done.”

China is thought likely to be one of the countries which may be ready to commit additional cash to the IMF on a voluntary basis.

The president of the European Commission, Jose Manuel Barroso, struck an optimistic note about the Greek situation, telling 'Today': “What we expect to happen is to have a government of national unity and that government will conclude the deal with us for a new EU and IMF programme, so I believe all the problems will be solved.”

He conceded that a Greek exit from the single currency was a possibility that would set a bad precedent but said it was a decision for Athens.

“When you are a member of the euro area, like a member of any club, you have to respect the rules and it is up to them to decide if they want or not to keep their position in the euro area.

“We believe it is in their interests and we would like them to stay.”

Mr Barroso also said he believed EU treaty changes would be required in future to introduce “more integration and more discipline” among euro countries to ensure they could react more quickly to market pressures.

While some action needed to be introduced immediately, “more fundamental changes, like a common issuance of bonds, a kind of common treasury, a mutualisation of debt, these require more time and treaty change. may require a treaty change”, he said.