Portugal bailout: UK could be asked to contribute £4bn

Treasury confirms potential UK contribution to rescue package for Portugal as George Osborne seizes on debt crisis as vindication of his deficit reduction policies

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• Hélène Mulholland and agencies
• guardian.co.uk, Thursday 7 April 2011 15.30 BST
• Article history

Portugal bailout: George Osborne today said the debt crisis showed that those opposed to the British government’s deficit reduction plans were playing 'Russian roulette' with UK sovereignty. Photograph: Stefan Rousseau/PA
Britain could be required to find more than £4bn to help a European bailout of the stricken Portuguese economy, the Treasury has confirmed. The chancellor, George Osborne, seized on Lisbon's debt crisis to warn that those opposed to the British government's deficit reduction plans were playing "Russian roulette" with UK sovereignty. The "difficult decisions" taken had brought "credibility and stability" to Britain's finances, Osborne said. But the prospect of Britain helping to rescue another member of the eurozone on the back of the emergency funding provided to Ireland provoked anger in Conservative ranks. The Portuguese prime minister, José Sócrates, announced on Wednesday that he was following Ireland and Greece in seeking an EU bailout – which analysts say could be up to €80bn (£70bn) – as "the last resort". The British government argues that it is bound to help under an agreement signed by the former chancellor Alistair Darling in the last days of the Labour government, committing all EU member states to act as guarantors of any emergency funding. However, the leader of the Conservative MEPs in Brussels, Martin Callanan, said the legality of the bailout under the terms of the agreement was "highly dubious". "Europe is sinking fast under the weight of its own uncompetitiveness and debt," Callanan said. "It must not be allowed to take the UK with it." The Eurosceptic Tory backbencher Douglas Carswell questioned claims by current ministers that they had opposed the deal, pointing to a Treasury memorandum suggesting there had been cross-party agreement. The Treasury said the UK was not planning to offer bilateral assistance to Portugal in the way that it did to Ireland. But it confirmed that Britain could be required to provide a loan of up to about £4.4bn – 13.6% of the €37.5bn remaining in the EU "disasters fund" after it was drawn upon by Ireland – as well as 4.5% of any IMF loan. The exact sums will depend on what application is made by Lisbon and how much of the bailout can be absorbed within the eurozone-only fund. In a speech to the British Chambers of Commerce (BCC) conference in London, Osborne contrasted events in Greece, Ireland and Portugal with the UK government's decision to put in place "a credible deficit reduction plan" which had provided a "crucial bedrock of stability". "If you hear the stories about the cuts and still wonder why our country needs to take these difficult decisions, then look at what is happening around us," he said. "Today, of all days, we can see the risks that would face Britain if we were not dealing with our debts and paying off our national credit card. "These risks are not imaginary – they are very, very real. Those in our country who deny the urgent need to deal with our deficit are playing Russian roulette with Britain's national sovereignty. I will not do that." The shadow chancellor, Ed Balls, accused Osborne of a "desperate piece of scaremongering" and called him a "desperate chancellor who looks out of his depth". Balls told Sky News: "If anybody is playing Russian roulette with the British economy, it's George Osborne, taking a huge gamble now without any idea how it's going to turn out. "That may be good political lines. But it's very bad economics, and it's taking huge risks with jobs and businesses and family finances up and down the country. I think he's got this very, very badly wrong. And he will rue this day, with this blatant politicking." Osborne told the BCC that while the UK recovery was "choppy", Britain was "putting its house in order". "We now have almost the same market interest rates as Germany, despite having a bigger budget deficit than Portugal, Greece and Spain," he said. He added that the government was "unashamedly pro-enterprise, pro-business and pro-aspiration", with a central objective of restoring UK competitiveness "after years of decline". "We need to step up a gear," he said. "Britain needs to out-compete, outsmart and outpace the rest of the world." But he warned that "enterprising Britain" could not be build by government alone, urging businesses to help ministers combat the "forces of stagnation who will try to stop the forces of enterprise". He said these included unions opposed to reforms of the industrial tribunal system, which they claim will weaken workers' rights to fair treatment. Osborne said the workplace rights of an employee had to be balanced with the rights "not be priced out of the market" in the first place because of the cost burden on business. His speech comes as the government invites businesses and community groups to help "rip up" some of the UK's 21,000 rules and regulations in a drive to tackle red tape and remove "ridiculous" burdens.