The UK has declined to contribute to the European Union’s campaign to supply the International Monetary Fund (IMF) with an extra Euro 200bn (£167bn) to fight the debt crisis.
The 17 eurozone governments are expected to pledge Euro150bn towards the target, but they had hoped the UK would put in as much as Euro 30bn, helping to persuade governments to contribute.
However, George Osborne told his 26 EU counterparts that the UK would not be offering any further IMF funds unless it was in a broader international effort, the Financial Times reported.
The chancellor reiterated the Government’s position that the IMF’s purpose is to protect “countries – not currencies” and said Britain believes eurozone members should take more decisive action to tackle the problems among themselves.
The bid to raise money for the IMF is part of an effort to bolster the “firewall” of rescue money the EU can call upon to battle attacks on eurozone sovereign bonds and banks.
European Central Bank (ECB) president Mario Draghi warned that the EU’s main firewall, the Euro 440bn European Financial Stability Facility (EFSF), could be hit by Standard & Poor’s potential downgrade of France’s AAA debt rating.
Draghi did not state when he thought a potential downgrade was due, but he said it would have a significant impact on the EFSF, which relies on guarantees from the eurozone’s six AAA-rated countries to retain its Euro 440bn lending capacity. Should France be downgraded, it could lead to the loss of Euro 158bn in AAA support.
He told the European parliament that “there are several things that can be done” to deal with a French downgrade, which would result in the fund itself losing its AAA rating, or a drop in lending capability. The ECB was recently made the financial “agent” of the EFSF and is now looking at possible solutions.
A potential French downgrade and a failure to reach the Euro 200bn target could create another episode in which the EU seems to have fallen short of pledges its leaders have made to financial markets, diplomats fear.
Britain’s position is also expected to add to the friction between the UK and other members of the EU, which has developed since prime minister David Cameron effectively vetoed an effort from France and Germany to overhaul the EU treaties to bring in stricter budget rules.
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