Britain to share costs of Greek exit

 

By Ambrose Evans-Pritchard, International business editor

8:00PM BST 13 May 2012

Germany has drawn up plans to make Britain pay a share of the multi-billion pound clean-up costs if Greece is ejected from the euro, risking a clash with Downing Street.

Volunteers in traditional Greek costumes raise the national flags of Greece and the UK during a ceremony for the arrival of the Olympic Flame. If the German plan gains broader EU backing, it would effectively recruit Britain as a loss-absorber to protect the ECB. Downing Street has said repeatedly that Britain will help only through the IMF. Photo: AP

A finance ministry draft shows that Berlin is preparing a fresh bail-out to stabilise the Greek economy and stem EMU-wide contagion after a return to the drachma, should the country reject EU austerity demands.

The funds would come from Europe's rescue machinery but costs would be shared among all 27 EU members – not just the eurozone – on the grounds that Greece has a right to Brussels crisis funds, like any other member state with its own currency.

The scheme aims to contain fallout from a Greek exit and "limit the losses of the European Central Bank" on the country's bonds.

The plan, leaked to Germany's Der Speigel newspaper, was disclosed as markets braced themselves for another week of drama, with fears of an EMU break-up and a banking crisis in Spain infecting confidence across the world.

Romano Prodi, the former EU Commission chief, said those threatening to eject Greece were playing with fire. "Exit would bring down the whole house of cards, with one state falling after another: it would reach Portugal, Spain, then Italy and France," he said.

 

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If the German plan gains broader EU backing, it would effectively recruit Britain as a loss-absorber to protect the ECB. Downing Street has said repeatedly that Britain will help only through the International Monetary Fund.

The plan is also part of a German-led pressure campaign against Greece, intended to drive home the message that refusal to comply with EU-IMF terms means expulsion from the euro. Patrick Honohan, Ireland's ECB member, said a Greek exit would be disruptive but "technically feasible".

Eurogroup chairman Jean-Claude Juncker said Greece should be given more time to meet austerity targets if a "stable government" is installed. "We should stop shouting at them and telling them what to do," he said.

Karolos Papoulias, the Greek president, met party leaders on Sunday in a last-ditch effort to forge a government before calling new elections. Polls showed the hard-Left Syriza party on 25.5pc, making it the dominant force in Greek politics.

The crisis is escalating in a string of countries. Italy is mulling plans to deploy troops to protect tax offices and industrial groups after petrol bomb attacks. The head of Ansaldo Nucleare was shot and injured by anarchists last week.

France's new president, François Hollande, meets Chancellor Angela Merkel in Berlin on Tuesday and any sign that the Franco-German marriage is fraying badly would call into question the long-term viability of monetary union.

Mr Hollande says he will reject the treaty if there is not more stress on growth. Mrs Merkel brushed aside the demand, yet the Greens in Germany will block the treaty unless it moves away from austerity. "Without us it is not going to happen," said Jürgen Trittin, the party co-leader.

Mrs Merkel's Christian-Democrats were heading for a heavy defeat in a state election last night.

Britain to share costs of Greek exit - Telegraph